Warren Buffett's annual shareholder letter will be released Saturday when Berkshire Hathaway reports earnings. Here's what analysts are looking for.

Carmen ReinickeFeb 21, 2020, 20:51 IST

Warren Buffett's annual letter to shareholders is set to be released on Saturday, February 22.
Berkshire Hathaway, the company Buffett runs, will also report its fourth quarter 2019 earnings the same day.
Here's what analysts will be looking for in the company's earnings release and Buffett's letter.
Watch Berkshire Hathaway trade live on Markets Insider.
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It's a moment investors have been waiting for. On Saturday, famed value investor and "Oracle of Omaha" Warren Buffett will release his annual shareholder letter in tandem with Berkshire Hathaway's fourth quarter 2019 earnings.

In the letter, which Buffett has been writing to Berkshire Hathaway investors each year since 1965, he will give an overview of the company's performance and plans for the future.

Investors are already aware of some details around Berkshire Hathaway's performance in 2019. The company's stock returned only 11% for the year while the S&P 500 gained 29%, the worst underperformance of the broader market in a decade.

In addition, Buffett again ended the year without a major "elephant-sized" acquisition despite a few attempts at one. He did not make an offer for Tiffany & Co., as he's long avoided bidding wars. Buffett also refused to bid higher for Tech Data, which he lost to Apollo Global Management, a private equity firm.

Now, analysts and investors are curious about what's next for Buffett and Berkshire Hathaway, especially as the company is sitting on a growing cash pile that ballooned to a record $128 billion in the third quarter of 2019.

"One thing that people are looking for and I am looking for is an update on the acquisition strategy," Cathy Seifert of CFRA told Markets Insider in an interview, adding that she's "not necessarily optimistic" that investors will hear one.

In a 2018 letter to shareholders, Buffett said he hoped to invest more of Berkshire's cash, but was having trouble finding deals because "prices are sky-high for businesses possessing decent long-term prospects." Just last week, Charlie Munger, the vice chair of Berkshire Hathaway and Buffett's right-hand man, noted that it's been a long time since the company bought anything. "We're gradually getting more pessimistic about using our money," he said, according to Bloomberg's Katherine Chiglinsky.

In the meantime, the company has been trying to deploy some of its cash in other ways. Berkshire Hathaway recently changed its rules around share buybacks and repurchased $700 million of its own stock in the third quarter, but analysts pointed out it could have bought more. Berkshire has also continued to put money into its holdings of marketable equities.

The company bought shares of grocery chain Kroger and pharmaceutical giant Biogen in the fourth quarter, and increased holdings of General Motors and RH, according to Securities and Exchange Commission filings. Still, Berkshire was a net seller of equities in the fourth quarter, offloading shares of Wells Fargo, Goldman Sachs, and Apple.

Here's what three analysts are saying before Warren Buffett's annual letter and Berkshire Hathaway's earnings Saturday.

See Warren Buffett's annual shareholder letter will be released Saturday when Berkshire Hathaway reports earnings. Here's what analysts are looking for. >>

1. UBS: "Buffett will pursue further acquisition targets in 2020"

"We expect Buffett will pursue further acquisition targets in 2020," a team of analyst led by Brian Meredith wrote in a January 28 outlook for Berkshire Hathaway.

He continued: "However, valuations continue to climb, making it difficult to find a company that is attractively priced. Thus we view share repurchases as an attractive use of capital given that shares are currently trading ~25% below our estimate of intrinsic value. We have built ~$3.8b of share repurchases into our projections for 2020."

CFRA: "Assets in excess of $125 billion"

"CFRA estimates that Berkshire will have short-term liquid assets in excess of $125 billion (primarily cash and short-term government securities) at year-end 2019, the bulk of which ($80 billion to $90 billion) could be earmarked for acquisitions, " wrote Cathy Seifert in a note February 19.

She continued: "The harder part in this exercise is ascertaining Berkshire's acquisition strategy. However, our sense is that it is less likely to increase its exposure to heavily regulated industries (like those in the financial services sector) when it can leverage upside to these industries via investments."

Seifert also noted that sustainability is something that's been largely missing from Buffett's letters. "The vast majority of asset managers are addressing sustainability to some degree in their annual letter to shareholders. Will Berkshire join the fray? Sustainability and socially responsible investing have not historically been a Berkshire mantra, but perhaps now should be," she wrote.

Morningstar: We "expect that Berkshire's cash on hand exceeded $135 billion"

"There were a few surprises in wide-moat Berkshire Hathaway's fourth-quarter 13-F filing," wrote Greggory Warren of Morningstar in a February 15 note. In the quarter, Berkshire Hathaway added to its stake in Occidental Petroleum while also "continuing to whittle down" its stake in Wells Fargo.

The company was a net seller of equities in the fourth quarter, Warren said, which could mean that its cash pile has grown further.

"Net proceeds from the company's purchases and sales amounted to an estimated $5.2 billion, so we would expect that Berkshire's cash on hand exceeded $135 billion at the end of last year," Warren wrote.

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Warren Buffett's annual shareholder letter will be released Saturday when Berkshire Hathaway reports earnings. Here's what analysts are looking for.

1. UBS: "Buffett will pursue further acquisition targets in 2020"

CFRA: "Assets in excess of $125 billion"

Morningstar: We "expect that Berkshire's cash on hand exceeded $135 billion"