Berkshire Shares 'Attractively Valued,' Barclays Says Future Acquisitions To Be Immediately Accretive

Investors looking to employ a "coat-tail" strategy and invest in what billionaire Warren Buffett invests in may be making the right move.

Barclays' Jay Gelb commented in a research report that Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) holding company is "well positioned" to take advantage of not only an improving economy, but also higher short-term interest rates, and future accretive acquisitions.

While Berkshire's stock was hit with an earnings drag, a recovery is expected throughout 2017 and 2018. Perhaps more important, Berkshire's intrinsic value has benefited from notable acquisitions such as Kraft Heinz Co (NASDAQ: KHC), Precision Castparts Corp. (NYSE: PCP) and Duracell and supports an annual book value growth of up to 10 percent and return on comprehensive tangible equity of up to 12 percent. Moreover, the analyst believes that any future acquisition will be immediately accretive to its earnings per share.

Deployable Cash

Gelb pointed out that Berkshire is sitting on $75 billion in deployable cash while the company will also generate in excess of $20 billion in annual free cash flow this year. Meanwhile, Buffett will remain with the company he has run for decades for the "foreseeable future," but a succession plan is still in place.

Gelb also pointed out that Berkshire's stock is "attractively valued" at 1.44x trailing book value. The analyst has a $197 price tag on the Class B stock and a $295,000 price target on the A class. Both of these estimates implies a multiple of 1.4x on 2018 estimated book value per share.

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