OMAHA — Warren Buffett is sending a clear signal that he believes Berkshire Hathaway’s stock is undervalued by announcing a plan to repurchase stock for the first time since taking over the firm in 1965.
Berkshire said Monday that the company Buffett leads will repurchase its Class A and B shares any time they are trading at less than 110 percent of book value. Berkshire’s Class A stock surged 8.1 percent, or $8,129, to close at $108,449 Monday. Its more affordable Class B shares rose $5.72, or 8.6 percent, to $72.09.
Book value is a measure of a company’s value that Buffett often cites because it is similar to the intrinsic value figure he calculates to determine whether an investment is overpriced. At the end of June, Berkshire estimated its assets were worth $98,716 per Class A share after liabilities were deducted.
That estimate doesn’t include Berkshire’s $9 billion acquisition of specialty chemical maker Lubrizol that was completed this month.
Stifel Nicolaus analyst Meyer Shields said the repurchase announcement came as a surprise, but investors should realize that Buffett left the terms flexible so he hasn’t committed to buying back any stock. “He’s just giving himself another tool to play defense with,” Shields said.
Buffett talked about repurchasing Berkshire stock once before in his 1999 annual letter but never did buy back shares because the price improved after he talked about its being undervalued.
