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Berkshire Results In Line With Expectations

With wide-moat Berkshire Hathaway BRK.A reporting third-quarter results that were in line with our expectations, we are leaving our $380,000 ($253) per Class A (B) share fair value estimate in place. Third-quarter (year-to-date) revenue, which includes unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, declined (increased) 2.9% (16.9%) to $78.2 ($230.5) billion. Excluding the impact of investment and derivative gains/losses and other adjustments, third-quarter (year-to-date) operating revenue increased 2.4% (2.8%) to $64.9 ($189.2) billion as improved results from the company's insurance, manufacturing, and service and retail operations helped offset weakness at the railroad and utilities/energy business.

Operating earnings, excluding the impact of investment and derivative gains/losses, increased 14.2% (2.6%) year over year to $7.9 ($19.6) billion during the third quarter (first nine months) of 2019. When including the impact of the investment and derivative gains/losses, Berkshire's earnings declined (increased) 25.7% (215.9%) to $8.7 ($32.7) billion. With the company lapping a difficult fourth quarter, we expect Berkshire to close out the year with solid results (even with the drag from ongoing trade tensions and tariffs).

Book value per share, which still serves as a decent proxy for measuring changes in Berkshire's intrinsic value, increased 4.1% sequentially to $243,483 (from $233,977 at the end of the June quarter), slightly better than our forecast of $240,411. The company closed out the September quarter with a record $128.2 billion in cash and cash equivalents, up from $122.4 billion at the end of June (and $103.6 billion at the end of the third quarter of 2018). This left Berkshire, by our estimates, with around $103 billion in dry powder at the start of the fourth quarter that could be committed to investments, acquisitions, share repurchases, and dividends.

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