Warren Buffett just donated $4.1 billion of Berkshire Hathaway stock – yet he owns more of his company now than he did a year ago

warren buffett
Warren Buffett.

  • Warren Buffett donated $4.1 billion of Berkshire Hathaway stock to charity this week.
  • The investor’s stake in Berkshire has still grown from 15.5% to 15.8% over the past year.
  • Berkshire has ramped up share buybacks, increasing Buffett’s ownership of his company.
  • See more stories on Insider’s business page.

Warren Buffett gifted $4.1 billion of Berkshire Hathaway stock to good causes on Wednesday, yet he owns more of his company today than he did a year ago. Stock buybacks explain that disconnect.

The famed investor’s stake in Berkshire has grown from 15.5% last July to 15.8% today, thanks to the conglomerate ramping up share repurchases. It plowed around $18 billion into buybacks in the second half of 2020, $6.6 billion in the first quarter of this year, and an estimated $6.5 billion of repurchases this quarter so far. It has spent about $38 billion in total on repurchases since the start of last year.

The latest $6.5 billion outlay is based on Buffett’s disclosed Berkshire stake in a regulatory filing this week. We calculated the approximate number of outstanding shares using that information, and subtracted that figure from the share count at the end of March. We then multiplied the decline in shares by Berkshire’s average share price over the past 12 weeks to estimate how much the buybacks cost.

It appears that Berkshire has reduced its outstanding shares by about 5% over the past year, while Buffett parted with around 4% of his Berkshire stock to make his latest charitable contribution. As a result, he now owns more of the company, despite holding fewer shares.

Buffett has celebrated the ability of buybacks to passively increase ownership in the past. “I love the idea of having our 5%, or whatever it may be, grow to 6% or 7% without us laying out a dime,” he said about Apple’s share repurchases at Berkshire’s annual meeting in 2018.

The investor highlighted in his latest annual letter that Berkshire’s Apple stake has grown from 5.2% to 5.4% since it established a position in mid-2018, even though Buffett and his team sold about 6% of their holding for $11 billion last year. Moreover, he pointed out that Berkshire’s own share repurchases have boosted its shareholders’ indirect ownership of Apple, the biggest position in Berkshire’s stock portfolio by far.

“The math of repurchases grinds away slowly, but can be powerful over time,” Buffett said in the letter. “The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses.”

Buffett’s rising ownership of Berkshire despite his latest act of philanthropy is a great example of that process in action.

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Corporate share buybacks are at a record high but capex and tax demands may slow the pace, says BofA

US dollar bill
  • A four-week average of share buybacks hit a record of nearly $2 billion, according to research from Bank of America.
  • Wall Street may be on track for $900 billion of gross S&P 500 buybacks in 2021.
  • But buybacks may slow down if companies put more cash into capital expenditures.
  • See more stories on Insider’s business page.

Share repurchases by corporations reached record highs in March, but buybacks may slow if companies decide to swing their cash into capital expenditures or if they adhere to tax regulations stemming from the government’s stimulus efforts, said Bank of America.

The four-week average of repurchases by corporate clients hit record highs “after a big resurgence in buybacks this month” that put transactions at nearly $2 billion, said a team of equity and quant strategists led by Jill Carey Hall in a research note released Wednesday.

If corporate client buybacks continue at the pace of $21 billion year-to-date or more than $80 billion annualized, that would imply more than $900 billion of gross S&P 500 buybacks in 2021, the strategists said. It said it based that figure on a roughly 9% average share of S&P buybacks over the last five years.

“This would be above 2018’s peak $800 billion levels and nearly double 2020’s depressed $500 billion levels, suggesting upside risk to our forecast for no net EPS impact from buybacks to the S&P,” BofA said.

Recent repurchases have been prominent in the tech sector, with near-record buybacks in each of the last six weeks.

However, the strong pace of overall stock repurchases “may not persist if cash deployment priorities shift more toward capex, which investors want and where corporates have underinvested,” said BofA. It referenced its Fund Managers Survey issued March 16 that showed “investors now want capex” and not buybacks or debt reduction.

“We see multiple tailwinds for capex including the cyclical rebound, a potential infrastructure bill and US re-shoring,” or relocations by companies back in the US, Carey Hall said.

President Joe Biden is set later Wednesday to unveil a $2 trillion infrastructure bill that’s expected to focus on investments including in roads, bridges, and broadband.

“What else can curtail buybacks? Payback for stimulus (i.e., higher taxes) which could cost 5-10% EPS growth,” said BofA.

Biden is expected to propose that his eight-year infrastructure plan be paid for with tax hikes on corporations. Earlier this month, Biden signed off on a $1.9 trillion fiscal stimulus package.

BofA said single-stock corporate buybacks in tech last week hit roughly $1.61 billion. March was a relatively rough month for large-cap tech shares as investors rotated from the high-flying group and into small-cap and cyclical shares. The rotation has been stoked in part by the vaccination of millions of Americans that’s been leading more businesses to resume normal operations.

BofA said it’s starting to see a pickup in buybacks in other sectors including consumer discretionary, health care and financials. The Federal Reserve said last week that as of June 30 it will lift share buyback and dividend-payout restrictions on banks that pass stress tests. The Fed last year imposed the restrictions as a way to safeguard the financial system in the face of the COVID-19 pandemic.

Last week, corporate buybacks reached $143 million for consumer discretionary stocks and $119 million in health care shares, BofA data shows.

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Warren Buffett’s Berkshire Hathaway posts lower profits, reveals $25 billion in stock buybacks last year

warren buffett
Warren Buffett.

  • Warren Buffett’s Berkshire Hathaway posted a 9% drop in operating earnings in 2020.
  • The billionaire investor’s company took a $10 billion writedown on Precision Castparts.
  • Berkshire repurchased about $25 billion of its stock last year.
  • Visit the Business section of Insider for more stories.

Warren Buffett’s Berkshire Hathaway suffered a 9% decline in operating earnings last year as the COVID-19 pandemic caused widescale disruption to its business, its fourth-quarter earnings revealed on Saturday.

The famed investor’s conglomerate owns scores of businesses including Geico, See’s Candies, and the Burlington Northern railroad. It also holds multibillion-dollar stakes in public companies such as Apple, Bank of America, and Coca-Cola.

Berkshire’s revenues only slid 4% last year, but its investment gains slumped by more than 40%, slashing its net earnings to about $43 billion.

The company generated slimmer profits from its insurance division’s investments, its railroads, and its manufacturing, service, and retail businesses. However, it earned more income from utilities and energy, as well as insurance underwriting.

Berkshire boasted $138 billion in cash and short-term investments at the end of December, underscoring its failure to make the “elephant-sized” acquisition that Buffett has been hunting for several years now.

Precision Castparts – Berkshire’s last big acquisition, bought for $37 billion in 2016 – posted a 29% slump in revenue and a 65% plunge in pre-tax earnings in 2020.

Buffett wrote down the value of the manufacturing subsidiary by $10 billion, citing question marks around the timing and scale of the recovery in the commercial-airline and aerospace industries as vaccines are rolled out globally.

The investor admitted Berkshire paid too much for the business in his annual letter on Saturday, calling the deal terms a “big” error on his part.

Buffett’s company spent about $7.8 billion on stocks last quarter, which included Chevron, Verizon, and Marsh & McLennan. It sold a little over $10 billion worth of stock, as it cashed out some of its massive Apple stake and slashed its positions in JPMorgan and Wells Fargo.

Berkshire’s investment moves last quarter mean it spent about $30 billion in total on stocks last year. However, it sold about $39 billion worth, making it a net seller to the tune of roughly $9 billion in 2020.

Buffett’s company repurchased the equivalent of 81,000 of its “A” shares – or nearly 5% of its total shares outstanding – for $24.7 billion in 2020. That included $8.8 billion in buybacks last quarter alone, just shy of the record $9 billion worth in the third quarter.

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Home Depot will surge 35% for 5 key reasons, according to Bank of America

home depot
  • Bank of America raised its price target for Home Depot’s shares to $360, which would mark 35% upside from Tuesday’s closing price. 
  • Home Depot’s capacity to spend $6 billion to $10 billion in share buybacks is a potential driver for earnings per share, the bank said. 
  • The investment bank said the retailer has been consistent in posting double-digit monthly same-store sales growth.  
  • Visit the Business section of Insider for more stories.

Home Depot’s  sales growth and the potential for up to $10 billion in share buybacks are among five reasons to buy into the home-improvement retailer, Bank of America said Wednesday, raising its price target on the stock to $360 from $355.

In a note on Wednesday, the investment bank reiterated its buy rating on the company. The higher call would represent upside of 35% from Tuesday’s closing price of $267.24.

Shares of Home Depot were under pressure Wednesday following a 3% decline the day before, after the company did not provide fiscal 2021 profit guidance as it monitors how consumer spending will evolve.

Home Depot’s fourth-quarter revenue of $32.26 billion was higher than a year ago and beat Wall Street’s expectations of $30.7 billion.

Bank of America said Home Depot’s fourth-quarter results marked the third consecutive quarter of same-store, or comparable, sales growth of more than 20%. It said monthly comparable sales figures have run consistently above 20% since May 2020 and that Home Depot has indicated it was seeing that pace in February.

“This illustrates HD’s consistent and strong execution within a strong category of retail,” wrote BofA research analysts led by Elizabeth Suzuki.

Alongside sales growth, BofA outlined four other reasons it said investors should consider Home Depot shares worth buying:

Capacity for share buybacks

Home Depot had $7.9 billion in cash on its balance sheet as of January 31, which the investment bank said is more than 3 times the average year-end cash balance of the previous five years. The retailer plans to keep a cash cushion of at least $4 billion throughout 2021 but BofA expects the company to spend at least $6 billion on share repurchases throughout the course of the year.

Home Depot, however, “could buy back as much as $10 billion in shares without cutting into its cash threshold, by our estimates,” the analysts said. “We view this as a significantly underappreciated upside risk” to per-share earnings.

Above-average wallet share

There should be a shift in consumer spending to “away-from-home” categories in the second half of 2021, but “home is still the place to be (and spend) for now,” said the bank as it referenced year-to-date spending data and its proprietary indicator of consumer spending at home improvement stores.

Taking market share

Home Depot estimates it has captured 275 basis points of market share growth between 2018 and 2020 as a result of its One Home Depot initiative, according to the note.

The “company’s performance during the pandemic underscores the benefit of these initiatives, and illustrates the advantage of being the #1 retailer in the category with a very healthy balance sheet, i.e. the ability to out-invest competitors,” wrote BofA.

The right investments

In terms of investments, the acquisition of industrial products company HD Supply late last year could add another “4-5% in top-line growth in 2021 above comp” and provide exposure to post-pandemic “reopening” opportunities through the maintenance, repair & operations, or MRO, market. 

“Additionally, HD’s investments in hourly wages and benefits for associates should attract talent, engender loyalty, and limit attrition as other retailers follow suit,” said BofA.

Shares of Home Depot traded at $254.84 at 11:57AM E.T. on Wednesday. 

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