- Warren Buffett’s annual letter is set to be releasedSaturday.
- Investors are eagerly awaiting the letter, which is expected to address Buffett’s outlook on topics that go beyond the company’s financials.
- In a new report to clients, Morgan Stanley analysts described what they’re looking for.
- Watch Berkshire Hathaway trade live.
Berkshire Hathaway shareholders will get a peek inside Warren Buffett’s mind on Saturday. They will get to review Berkshire’s balance sheet, earnings, and revenue growth, as well as other financial metrics to assess the company’s health.
But the broader investment community, in what has become an annual ritual, will pore over Buffett’s usually wide-ranging letter to shareholders.
“Beyond the numbers, investors are eager to read Mr. Buffett’s annual letter,” equity analysts led by Kai Pan wrote in a note out Tuesday.
The analysts said they’re interested in gaining insight into the company’s investments, share buybacks, potential deals, and updates on specific initiatives like the healthcare joint venture announced last year by Berkshire Hathaway, JPMorgan, and Amazon.
As far as Berkshire’s investments go, the analysts said they’re most interested in updates regarding its holdings in the financial sector, its Apple position, and the “unusual case” of its Oracle investment, which the conglomerate bought in the third quarter and sold in the fourth quarter. That went against Buffett’s typical longer-term investment philosophy, they noted.
Additionally, the analysts are looking for any guidance Berkshire might provide on its share-buyback program. This quarter’s update could be particularly notable, the analysts said, because the company’s board of directors recently loosened its policy for buying back stock.
Berkshire bought back nearly $US928 million worth of shares in the third quarter, at a price of about 1.35 times the third-quarter book value per share. Buffett and Berkshire’s vice chairman, Charlie Munger, said they would authorise stock buybacks when the repurchase price falls “below Berkshire’s intrinsic value.” Prior to the decision, the company would not buy back stock above 1.2 times book value per share.
“This could be the new ‘floor’ below which Messrs. Buffett and Munger would consider the stock materially below its intrinsic value,” they wrote, referring to the 1.35 times valuation.
On the deal front, Morgan Stanley is looking for whether Buffett sees any acquisition opportunities after last year saying he believed deal valuations were too high.
The analysts said Buffett could discuss a host of other topics – anything from management succession and trade to tax reform, immigration, and “heightened natural catastrophes.”
In last year’s letter, Buffett said Berkshire’s insurance business posted a loss for the first time in 14 years, on the backs of the hurricanes Harvey, Irma, and Maria.
As far as its quarterly earnings go, Morgan Stanley expects a 64% year-over-year rise in operating income. The bank also expects Berkshire’s book value to have increased by 1% in 2018 – the slowest such pace since the 10% decline in 2008.