After the company released its third-quarter earnings report over the weekend, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) shares are getting a warm reception from Wall Street, rising about 5% as of 3:15 p.m. EST on Monday.
On Saturday, the company reported that its operating earnings doubled in the third quarter. Its quarterly filing revealed that its longtime CEO, Warren Buffett, may see its shares as cheaply priced.
Berkshire Hathaway's blowout quarter wasn't entirely unexpected. It had the benefit of lapping a dismal third quarter of 2017, when its insurance companies were hard hit by a devastating hurricane season. Its insurers fared better this year than last, earning underwriting profits of $441 million versus underwriting losses of $1.44 billion in the year-ago period.
The roughly $1.9 billion swing in its underwriting results accounts for much of the $3.4 billion increase in operating profit year over year. Taxes also played a very important role. Since Berkshire generates the bulk of its profits from domestic operations, the company is one of the biggest beneficiaries of a lower tax rate on corporate profits. The statutory corporate tax rate fell from 35% in 2017 to 22% in 2018.
Wall Street may be most pleased by evidence that the so-called Oracle of Omaha may see Berkshire's shares as cheaply priced. The company's quarterly filing revealed that Berkshire spent about $928 million buying back stock over a span of 14 trading days during the third quarter. It repurchased Class B shares of its stock at an average price of about $207 per share, just slightly above the $205.76 price at which shares closed on Friday, before the earnings report was released.
The market closely watches what Buffett thinks about stock prices, particularly when it involves shares of his own company. At the shareholders meeting in 2006, Buffett said that writing about his willingness to buy back stock in his 1999 letter to shareholders "eliminated the opportunity" to do so. The market bought the stock, and drove up the price, before Buffett could act.
Since Buffett is one of the greatest investors ever, and someone with a deep understanding of Berkshire's business, Wall Street is taking Berkshire's buybacks as a sign that shares of the company may be attractively priced.
It's not unusual for public companies to see their share prices surge when Berkshire buys their stock. But this case may be a little unusual, if only because Berkshire is buying shares of Berkshire.