January 15Th, 2019 Hannah Bentz Fixed Income Manager Eric Spector
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School of Business Investment Program January 15th, 2019 Hannah Bentz Fixed Income Manager Eric Spector Markets Analyst Footnotes Berkshire Hathaway School of Business Investment Program Agenda Investment Thesis Recent News/ Sector Outlook Company Overview & History Competitors Management & Governance Financial Highlights Company Strategy Valuation SWOT Recommendation Berkshire Hathaway School of Business Investment Program Investment Thesis ● Company: ○ Has focused on finding good companies at fair values ○ Now serves as an insurance conglomerate ○ Investment Portfolio made up 48 different brands ○ High valuations have kept Buffett, Combs and Weschler on the sidelines over the most recent segment of the bull market ○ Due to emotional market reactions, BRK/B shares have been discounted ● Macro: ○ Consistently has beaten the S&P 500 throughout every economic cycle ○ Well diversified with a long-term focus ○ An impending recession or further market corrections could present buying opportunities for Berkshire, eventually growing the security’s intrinsic value Footnotes Berkshire Hathaway School of Business Investment Program Company History ● Founded in Rhode Island. Now headquartered in Omaha, Nebraska. ● Buffett ended up buying the entire company in 1965 after conflict with CEO ● Acquired several insurance companies and has focused on finding good companies at fair values 1839 1930 1965 1967 1996 2017 Founded as a Buffett is born Buffett buys Starts Acquires Class A leading textile Berkshire investing in Geico shares top company insurance $300,000 companies Footnotes School of Business Berkshire Hathaway Investment Program Company Overview "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." - Warren Buffett Headquartered in Omaha, Nebraska Serves as an insurance company Uses liquidity to invest Has beaten the S&P by nearly 10% annually since 1965 Berkshire Hathaway School of Business Investment Program Leadership Warren Buffett Charlie Munger Todd Combs Ted Weschler Chief Executive Officer Vice Chairman Investment Manager Investment Manager and Executive Chairman - Munger was born in - Joined Berkshire in - In July 2010, at - Born to a stock broker Omaha, Nebraska. As a 2010 and is linked to $2,626,311, Weschler amidst Great teenager he worked at replace Warren Buffett was the top bidder to Depression. Buffett & Son as Chief Investment win a private lunch with Warren Buffett - Studied under Benjamin - Vice Chairman since 1978 Officer Graham - Buffett’s close friend as the - Serves on the board of - Buffett was impressed - Has grown book value two have known each JP Morgan by his background and by 19.0% annually other for more than 60 - Buffett is impressed offered him a position since 1965 years Footnotes School of Business Berkshire Hathaway Investment Program Holdings Apple BNSF Railway Geico Lubrizol School of Business Berkshire Hathaway Investment Program Company Strategy Value Investing Long-term strategic focus Margin of safety Capitalize on strong cash position Shareholders School of Business Investment Program Berkshire Hathaway SWOT Analysis Strengths Weaknesses ● Strong cash position ● Apple investment ● Outperforms S&P throughout ● Mark to market accounting any cycle ● Diversified ● Insurance Business Opportunities Threats ● Over $110 Billion in cash ● Buffett and Munger’s age ● Lower valuations ● US Economic Slowdown ● Share Buybacks ● PG&E ● Berkshire, JPM, and Amazon deal Berkshire Hathaway School of Business Investment Program Sector Outlook School of Business Berkshire Hathaway Investment Program Technical Analysis Berkshire Hathaway School of Business Investment Program Competitors Berkshire Hathaway School of Business Investment Program Competitors Price to Book ROA and ROE Debt EV/EBITDA AA- E Berkshire Hathaway School of Business Investment Program Financial Highlights Assets (Orange) Cash (Green) Debt (Yellow) Net Income (Blue) Berkshire Hathaway School of Business Investment Program Valuation Valuation ● Analyst Average: $237.68 ● Conservative DCF: $209.06 ● EV/EBITDA Multiple: $234.12 ● Return potential is 6-22% ● Private Equity ● VaR would not change Berkshire Hathaway School of Business Investment Program Recommendation To buy 61 shares at $197 for a total investment of $12,017..