Berkshire Hathaway
Overall, Berkshire's results are an indication that the industrial economy and energy sector are recovering given the company's exposure to these industries. Another positive is that the company is buying back shares which Buffett has said is an indication that share prices are cheap.
Inside the Numbers
In Q2, Berkshire Hathaway's operating income increased by 21% a clear indication of the economy's recovery especially compared to Q2 last year. Overall earnings were up by 6.8% year over year to $28 billion in the second quarter as the company's largest holdings in stocks like Apple
Despite the drop in stock prices over the last year, the company has made few acquisitions. This is different than previous recessions or market corrections. Buffett has attributed this to the Fed's vigilance which he said resulted in him not having a chance to act and valuations not getting attractive enough for him.
However, Buffett is using Berkshire's cash to buy back shares with another $6 billion bought in Q2, adding to $6.6 billion in Q1. Chairman and CEO Warren Buffett kept buying back Berkshire shares aggressively instead of making sizable acquisitions. The company repurchased $6 billion of its own stock in the second quarter, bringing the six-month total to $12.6 billion following $24.7 bought last year.
Assuming that Buffett maintains this pace of buybacks for the rest of the year, it'll mean that he has bought back about 8% of the company which is certainly a positive tailwind for the stock, lifting its EPS.
Berkshire also has an impressive cash pile at $144 billion which managed to stay the same despite the company's buybacks. And, it's likely to keep growing as the economy roars back to life from the pandemic. Earnings for railroads, utilities, and energy were up 27% to $2.3 billion. Other parts of the businesses like home builders and building materials are also seeing a boost.
Stock Price Outlook
Berkshire's stock has been quite strong and is approaching its all-time high. The company is well-positioned to benefit from the rebound in the industrial parts of the economy. The buybacks are another positive tailwind.
The combination of earnings growth and share buybacks should lead to continued outperformance.