As regular readers of my articles will know, I have been keeping a close eye on Berkshire Hathaway BRK.ABRK.B and the company's share repurchase plan since its board of directors, led by the Oracle of Omaha Warren Buffett (Trades, Portfolio), decided to change its share repurchase policy in the first half of last year.
As I have said before, I am not interested only in what the company is paying to acquire shares, but also the level at which Buffett considers the stock to be undervalued. This is also an exercise in evaluation and Buffett's process.
Slow and steady
The last time I covered the conglomerate and its buyback policy was in May, soon after Berkshire's annual general meeting and the publication of its first-quarter results.
So far, buyback activity has been relatively lackluster. According to its 10-Q for the first quarter of 2019, Berkshire acquired 293 A-shares in February at an average price of $302,622 per share and 595,412 B-shares at an average price of $201.73. It also purchased 965 A-shares at an average price of $304,175 and 592,4418 B-shares at an average price of $200.62 in March.
In total, Wall Street analysts estimate Berkshire spent $1.7 billion buying its own shares in the first quarter of 2019. If you add these repurchases to the deals done during the second half of 2018, Berkshire has spent nearly $3 billion on its shares since changing the repurchase policy -- a nominal sum compared to the more than $110 billion of cash on the conglomerate's balance sheet.
What deserves analysis is that Buffett and his team have been fairly timid with repurchases so far, even though the stock seems to have traded significantly below his estimate of intrinsic value over the past 12 months. So far, buybacks have taken place in a range of around $292,000 to $312,000 per A-share. The stock has traded above this range for approximately six of the past 12 months.
I have speculated before that it could be the case that Berkshire has conducted only limited purchases so far because Buffett wanted to explain his reasons for the buybacks to shareholders. He spent a good percentage of his annual letter doing just that, and he answered further questions on the topic at the annual meeting back in May.
Now that he has fully explained his logic to shareholders, there could be a chance that he has increased buyback activity substantially. Adding weight to this argument is the fact that Charlie Munger (Trades, Portfolio), Buffett's right-hand man at Berkshire, hinted that the company will "probably be more liberal" buying back shares going forward.
More buybacks to come?
So, I think there is a good chance that we will see an increase in the company's acquisition of its shares when Berkshire reports its second-quarter earnings.
Of course, this is only speculation at this point, and I don't want to second guess the Oracle. But it looks as if he has had plenty of opportunities to repurchase the stock at an attractive price since the last quarterly report.
In April, Berkshire A-shares traded at or above the $312,000 level for just half of the month. In May, the stock sold above this level for only nine days. After peaking at a high of $326,000 on May 3, it fell as low as $297,000 at the beginning of June before moving steadily higher to $319,000 at the end of June. I estimate that the stock was trading below the upper end of the buyback range for around half of the trading days during the second quarter. With an average daily trading volume of 253 shares, volume data doesn't really tell us much either, although I do note that volume spiked to 600 shares per day on May 6 and 700 on May 7 when the stock hit a high of $322,000.
The data does not tell us much, but it does suggest that Buffett has had plenty of opportunities to deploy capital buying back shares in Berkshire over the past few months.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:Â
Warren Buffett's Process for Dealing With Investment UnknownsÂ
Warren Buffett on Annual Reports: There's More to It Than the NumbersÂ
Warren Buffett: The Art of Asking Questions to Become a Good InvestorÂ
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