Assessing Berkshire Hathaway (BRK.A) Valuation As Greg Abel Takes The Helm From Warren Buffett

Buffett’s exit as CEO puts Abel’s capital decisions in the spotlight

Warren Buffett’s retirement as Berkshire Hathaway (BRK.A) CEO after six decades has pushed Greg Abel’s approach to its US$381.6b cash pile, capital allocation, and stock into sharper focus for investors.

See our latest analysis for Berkshire Hathaway.

Buffett’s handover to Abel has come with a softer tone in the short term, with a 30 day share price return of 1.03% and a 7 day return of 0.98% decline, even as Berkshire’s 1 year total shareholder return of 10.23% and 5 year total shareholder return of 113.43% point to a longer track record that investors are weighing against leadership transition risk and the large cash position.

If this leadership change has you thinking about where else capital might compound over time, it could be a good moment to broaden your watchlist with fast growing stocks with high insider ownership.

With Berkshire trading at a slight discount to analyst targets and internal models flagging a roughly 36.6% gap to estimated intrinsic value, the key question is whether you are seeing a genuine mispricing or a market that already reflects Abel era growth expectations.

Price to earnings of 16x: Is it justified?

With Berkshire Hathaway shares last closing at US$748,000 and trading on a P/E of 16x, the stock sits above the industry average but below what our models suggest could be a fairer level.

The P/E multiple compares the current share price to earnings per share, so it captures how much investors are currently willing to pay for each dollar of Berkshire’s profits. For a diversified financial group with insurance, rail and utilities all under one roof, earnings quality and stability often matter as much as headline growth when you think about what a reasonable P/E might look like.

On one hand, the shares screen as expensive versus the US Diversified Financial industry, where the average P/E sits around 14x. On the other hand, our work suggests a fair P/E closer to 18.7x, and Berkshire’s 16x is also below a peer average of 27x. That gap implies the market is pricing earnings more cautiously than both the broader peer group and the fair ratio our model points to, which could be an area for investors to scrutinise further.

Compared to the industry, Berkshire trades on a richer earnings multiple, which signals investors are paying a premium relative to many diversified financials. However, compared with the estimated fair P/E and higher peer average, the current 16x looks more restrained, suggesting there is room for the market view to shift toward those higher reference points if sentiment changes.

Explore the SWS fair ratio for Berkshire Hathaway

Result: Price-to-earnings of 16x (UNDERVALUED)

However, you still face clear risks, including leadership transition uncertainty under Greg Abel and the possibility that earnings or valuation assumptions behind that 36.6% intrinsic discount prove too optimistic.

Find out about the key risks to this Berkshire Hathaway narrative.

Another view on Berkshire’s value

Our DCF model takes a different angle from the P/E work. On those numbers, Berkshire’s shares at US$748,000 are trading about 36.6% below an estimated fair value of roughly US$1,179,686, which suggests the discount could be wider than the earnings multiple alone implies.

That kind of gap can reflect either a genuine opportunity or assumptions in the SWS DCF model that the market does not fully share yet, especially with earnings forecast to edge down by about 0.2% a year over the next 3 years. Which view do you think better reflects the risks and cash flows you are comfortable owning?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Berkshire Hathaway for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 882 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Build Your Own Berkshire Hathaway Narrative

If you see these numbers differently or simply prefer putting your own stamp on the data, you can build a custom Berkshire thesis in minutes using Do it your way.

A great starting point for your Berkshire Hathaway research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If Berkshire has sharpened your thinking about where your next dollar should go, do not stop here. Broaden your search and pressure test fresh ideas.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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