Warren Buffett's Berkshire Hathaway reported on earnings on Saturday and Wall Street is being caught by one important thing: the cash stack.
In the third quarter, the holding company's cash balance grew to a record $ 128.2 billion – up from $ 122.4 billion in the previous quarter and $ 23 billion a decade ago – which led analysts to wonder why the company is not spending.
Berkshire's last full acquisition was Precision Castparts in 2015, and the company has not meaningfully accelerated the buyback program, which has both contributed to the cash balance.
The company reported revenue of $ 3.07, which topped the Street consensus of $ 2.84, according to estimates by Refinitive. Revenues also exceeded expectations, and Berkshire said they repurchased shares worth $ 700 million in the quarter.
Without clear evidence as to why Berkshire is collecting money, a number of analysts wondered why the company was not buying back more shares. This is especially true since the stock is only up 7% this year and on pace for the worst year in ten years.
By comparison, the broader market has been in a tear. The Dow Jones Industrial Average and S&P 500 rose to a record high on Monday, bringing the overall gain for the year to 18% and 23%, respectively.
Morgan Stanley said that the program's share repurchases are fading in relation to the company's cash balance, and that investors "may be appalled by minimal share repurchases during the quarter."
Analysts at UBS reiterated this concern, saying that the buyback remains modest and that they were surprised that "the company has not been more aggressive with share buybacks" given the discount to the intrinsic value of BRK's stock currently trading with the significant excess cash balance . "
Morgan Stanley has an equivalent rating and $ 217 target on the stock. UBS has a buy rating and $ 242 12-month target.
Buffett has traditionally not been able to repurchase much of Berkshire Hathaway's stock, although in 2018 he eliminated a restriction that would make future repurchases easier.
"It is challenging to estimate Berkshire's pace for potential future share repurchases, which we now believe may be at a modest level going forward. We still consider a stock dividend as unlikely," said Barclays analyst Jay Gelb. "Berkshire now has over $ 100 billion in instant distributable cash for accredited acquisitions to complement organic growth as well as for investment and share repurchases," he added. Barclays has a neutral rating on the stock.
While Buffett has not bought entire companies lately, he has bought shares. From the latest round of SEC filings, Berkshire's top stake is Apple, Bank of America, Coca-Cola, Wells Fargo, American Express and Kraft Heinz.
"In recent years, the sensible path for us to follow has been clear: Many stocks have offered much more for our money than we could achieve by buying businesses in full … Charlie and I believe the companies we invested in gave an excellent value, well above what is available in acquisition transactions, "he wrote in his 2018 Annual Report.
Earlier this year, Berkshire announced a $ 10 billion investment in Occidental Petroleum for the Anadarko acquisition, and in 2017 the company almost bought 40% of truck stop operator Pilot Flying J.
Buffett is 90 years old next year, but so far the widely followed investor has shown no signs of slowing down amid speculation about who will follow him.
"Warren Buffett … intends to remain at the helm for the foreseeable future, and his success n is in place," Gelb said.
– CNBC's Michael Bloom and Eric Rosenbaum contributed to the report.