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Berkshire Hathaway $1 million a share
It is quite likely that Berkshire Hathaway shares hit $1 million a share by 2030.
Let me explain why.
Berkshire has recently been buying back its shares at approximately 5% per annum.
If this continues, there would be approximately 37% less shares outstanding by 2030.
If Berkshire grows its earnings by 7% over this period, then that would be 83% higher earnings by 2030.
83% higher earnings with a 37% lower share count is 2.9 times the current earnings per share.
The current share price is $350,701. $350,701 times 2.9 is $1,017,032.
There are two assumptions here that I think are somewhat rational:
- Earnings grow at 7% per annum and;
- Share count reduces at 5% per annum.
Earnings Growth
Expecting earnings growth of 7% a year is certainly not a stretch of the imagination for a company that has grown revenue at 11.27% over the last decade.
Share Count Reduction
Whilst Buffett has been buying back of late, his reluctance to do so over the last few years is notable. He may prefer a large “elephant gun” purchase over buybacks, however this has not materialised.
With markets at extreme levels and interest rates unlikely to rise in the next few years, I think that buybacks are far more likely than a large acquisition for Berkshire.
With $138.9 billion in cash lying around, Berkshire will likely keep buying back shares.
Buffett has promised to only buyback at below fair value. The significant rise in Apple (somewhat justified by their recent results), leaves the rest of Berkshire looking exceptionally cheap.
I expect share count reduction to continue at a relatively high pace in this environment.
Summary
I would suggest that his hypothetical analysis of Berkshire’s future share price may not be far from the actual outcome. Berkshire is one of the most diversified, steady and predictable companies on the planet. Their current cash levels provide added certainty.
It is a true masterpiece of capitalism.
