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Stocks B / Berkshire Hathaway

URL:  http://boards.fool.com/over-20-times-april-2013-earnings-please-explain-30541769.aspx

Subject:  Re: Berkshire buys Heinz Date:  2/14/2013  8:57 AM
Author:  mungofitch Number:  198549 of 211790

Over 20 times April 2013 earnings?
Please explain this one, Warren.
Very, very disappointing.


This is pretty much exactly what people said about the railroad. Looked dumb then, less so now.

It only makes sense if you look forward a few years.
The utter predictability of the business means there is a high certainty
that the firm will be earning over 10% pretax on the purchase price at some point.

Current run rate EPS is around $3.63 (trailing 2 quarters plus 2 quarters of forecast).
That makes current earnings yield 5.0% and pretax earnings yield about 6.25%.
If earnings grow 60% in real terms from here, it doesn't really matter
very much how long that takes provided it's certain enough and then sustainable.
Determining certainty and sustainability of earnings is hard, but Berkshire's forte.

Quite aside from the great brands, I like that it's 2/3 ex-US revenue.

The only thing that mystifies me is why 3G are involved.

Jim
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