Berkshire Hathaway's Share Buyback Policy: Boosting Bottom Line and Valuation

Berkshire Hathaway's revised share buyback policy has allowed the company to pursue repurchases more actively, lifting earnings per share and return on equity. The repurchase activity reflects management's confidence in the company's intrinsic worth and provides a measured use of capital. Berkshire's competitors, such as Travelers Companies and Chubb Limited, have also returned capital to shareholders via share buybacks, supporting their valuations and signaling confidence in their long-term profitability.

Berkshire Hathaway Inc. (BRK.B) has made significant strides in its capital allocation strategy by increasing the prominence of share repurchases. This shift, initiated in 2018, has allowed the company to pursue buybacks more actively, especially when attractive investment opportunities are scarce. Under the new policy, buybacks are permitted when shares trade below their intrinsic value and Berkshire retains at least $30 billion in cash and equivalents [1].

The revised policy has been instrumental in boosting earnings per share (EPS) and return on equity (ROE). By reducing the number of shares outstanding, Berkshire can lift these key valuation metrics even if total net income remains steady. This financial maneuver has been particularly effective in the absence of major deals, providing a measured and accretive use of capital [1].

The company's strong cash generation has been a key enabler of this strategy. In 2024, Berkshire repurchased $2.9 billion worth of stock, demonstrating its commitment to returning capital to shareholders [1]. This approach not only supports EPS growth but also sends a clear message of confidence in the company's intrinsic worth, reinforcing shareholder confidence.

Berkshire's competitors, such as Travelers Companies (TRV) and Chubb Limited (CB), have also adopted similar strategies to return capital to shareholders. Travelers, for instance, returned more than $1.4 billion of excess capital to shareholders in the first half of 2025, including $0.9 billion in share repurchases [1]. Chubb, on the other hand, has a $5 billion buyback program under its authorization, reflecting strong capital discipline and management's confidence in the company's long-term profitability [1].

Despite the positive outlook, BRK.B's stock has faced some challenges. The company is expected to witness an improvement in its top line but a decline in its bottom line when it reports second-quarter 2025 results. The Zacks Consensus Estimate for BRK.B’s second-quarter revenues is pegged at $98.5 billion, indicating a 5.2% increase from the year-ago reported figure. However, the consensus estimate for earnings is pegged at $5.24 per share, suggesting a year-over-year decrease of 2.6% [2].

BRK.B's stock has also underperformed the industry, sector, and the S&P 500 in the second quarter of 2025. The stock is trading at a price-to-book value of 1.58X, slightly higher than the industry's 1.53X [2]. Despite the premium valuation, investors should adopt a wait-and-see approach for BRK.B stock, given its premium valuation and the potential for a decline in the second-quarter bottom line.

References:
[1] https://www.nasdaq.com/articles/can-berkshires-share-buyback-policy-boost-its-bottom-line
[2] https://finance.yahoo.com/news/berkshire-stock-ahead-q2-earnings-172000774.html