The odds of Warren Buffett buying back Berkshire Hathaway (BRKB) shares are receding even though a swelling cash hoard would suggest ample liquidity for repurchases, an analyst said.
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Berkshire, which has vast interests in insurance, railroads, utilities, financial services, publishing, retailing and manufacturing, had a staggering $111.1 billion in cash and equivalents at the end of the second quarter, up from $109 billion at the end of Q1.
That expanding cash hoard has tested the patience of some shareholders who want to see Buffett put the money to use.
So in July Berkshire amended its repurchase policy so that any repurchase price is no longer capped at 1.2 times book value per share. But to initiate repurchases, the firm's "conservatively determined" estimate of book value must be above the current market price.
Edward Jones analyst James Shanahan estimates the market price that might unlock buybacks is above 1.2 times book value but below 1.4 times book value. Where is the market price now? Roughly 1.4 times book value.
"Given my expectation for the shares to rally today, the stock would only get farther away from that estimate of intrinsic value, making buybacks less likely," he told IBD in an email.
If shares fall, then the chances look different. Shanahan sees buybacks "providing some downside protection" given the conglomerate's "willingness and ability" — well in excess of $100 billion — to support repurchase activity.
Class B shares rose 3.1% to 206.33 in Monday's stock market action, its best levels since late March. Berkshire stock is in a base with a potential 217.72 buy point.
Warren Buffett has repurchased shares before, to the tune of $1.3 billion in 2012 for example.
Hopes for a new share repurchase were high ahead of Saturday's Q2 earnings release.
Morgan Stanley analyst Kai Pan said the recent amendment to Berkshire's share repurchase program "allows Berkshire to return part of the excess capital to shareholders while maintaining financial flexibility if attractive acquisition opportunities arise."
"We think solid 2Q results and ensuing stock buybacks should be positive catalysts for the stock," he wrote in July.
Rising Apple (AAPL) and Wells Fargo (WFC) share prices should boost its equity investment portfolio, Pan added.
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The post Here's The Likelihood Of Warren Buffett Buying Back Berkshire Hathaway Stock appeared first on Investor's Business Daily.
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