Here is a free copy of our report on Berkshire Hathaway, Inc. (BRK.A) for Ask Matt readers. This report provides details behind Matt’s analysis of BRK.A in his recent article, “Is Warren Buffett’s Berkshire Hathaway stock a buy?”
The main reason for the Neutral, rather than an Attractive-or-better rating, is Berkshire’s recent acquisition of Burlington Northern Santa Fe Corporation (BNSF). The rather large purchase price causes the company’s invested capital to rise dramatically, which lowers free cash flow and the free cash flow yield of the stock to our Very Dangerous Rating. Otherwise, BRK.A scores very well in New Constructs’ top-ranked stock rating system.
Despite this large acquisition, BRK.A’s return on invested capital (ROIC) and its economic earnings rise in 2010. This means that BRK.A is getting an impressive amount of after-tax cash flow (NOPAT) from BNSF.
For details on our analysis of the economics of BRK.A and our stock rating system, see the free report available at the link above as well as Investment Strategy 101.