Nomura: Berkshire Hathaway should reach records
Nomura said Berkshire model assumes modest U.S. GDP growth near 3%, but with more than 85% of the company's revenues in the U.S., anything better for the U.S. would mean even greater Berkshire earnings.
Berkshire Hathaway has a collection of best-in-class companies, from strong brands to low-cost distribution models to dominating market shares or limited competition, all of the major Berkshire businesses have sustainable competitive advantages, says Nomura.
Nomura EPS and book value projections give no credit for the deployment of $35 billion of cash in the hands of Warren Buffett. billion believes there is potential for more high-profile deals with lucrative terms, such those struck with Goldman Sachs, Bank of America, or Heinz.
Berkshire Hathaway is trading at 1.3-1.4x book value, below its historical mean of near 1.5x and below Nomura's sum-of-the-parts valuation of $184,000.
Nomura expect that the discounted valuation reflects concerns of whether Mr. Buffett can meaningfully continue to grow the huge Berkshire empire through his investing acumen, but this ignores the significant operating earnings of the empire that already exists. Operating company earnings drove approximately two-thirds of BRK's intrinsic value creation in 2012, but Nomura expect that to grow to be over 80% through 2014. ■