By my estimate, Berkshire Hathaway’s normal earning power after tax is approximately $18 billion. This puts the stock at an adjusted P/E ratio of 11x based on today’s share price.
To get there, I assume the following:
- Redemption of GE, GS and Swiss Re preferred
- Normalized but still low interest rates
- Normalized dividend for Wells Fargo and U.S. Bancorp
- 2012 dividend increase per consensus estimates
- IBM full-year dividend
- Full-year earnings for Lubrizol
- A more normal housing environment
Following Buffett, I also include undistributed earnings from Berkshire’s large equity holdings.
No adjustment has been made for Berkshire’s large cash holdings which I expect will approximate $40 billion after Q1, 2012, assuming no major purchases. This equates to almost $25,000 per A share.
Here is my data.
I welcome your comments on these adjustments and your thoughts on Berkshire Hathaway’s valuation.