Buffett's confidence in troubled decade-old acquisition finally pays off

Buffett's confidence in troubled decade-old acquisition finally pays off Six years ago, when Berkshire Hathaway took an $11 billion write-down of its $37.2 billion 2016 acquisition of Precision Castparts, Warren Buffett wrote in his annual letter to shareholders he had paid "too much" for the company, which makes " complex metal components and products ." While it was a "fine company – the best in its business," he had been "simply too optimistic" about its profit potential, a "miscalculation ... laid bare" by the enormous downturn for the aerospace industry, Precision Castparts' largest customers, amid the Covid pandemic. In a CNBC interview when the deal was first announced, Buffett admitted it was "a very high multiple for us to pay," but told shareholders at the 2016 meeting he had great confidence in Mark Donegan, the company's CEO, both then and now, and the company's long-term profit outlook.

It's taken longer than he planned, but Buffett's purchase is now looking pretty good. As Reuters puts it, there is currently a shortage of the "complex" products Precision Castparts makes that are essential for engine turbine blades. They're also used in natural gas turbines, which are in demand to produce energy for artificial intelligence data centers. A worker at GE Aerospace's Lafayette, Ind. engine plant

This week, GE Aerospace announced it would pay $11.75 billion to acquire Consolidated Precision Products, one of the few companies that competes against Precision Castparts. Barron's calls that "pricey" at 26 times projected 2027 earnings before interest, taxes, depreciation, and amortization. Using the same multiple, Barron's estimates Precision Castparts is worth around $100 billion. That's well above the potential value of $60 billion to $75 billion it cited in an article last month that said the unit "probably has become one of the more valuable divisions" of Berkshire. It's also nearly three times the 2016 purchase price.

In the Barron's piece, Andrew Bary said Berkshire, and its share price, aren't "getting much credit" for the subsidiary's rising value, in part because CEO Greg Abel, like Buffett, doesn't do analyst conference calls or investor events that could draw attention to the unit's performance. His recommendation: "Without Warren Buffett at the helm, Berkshire may have to start telling its story if it wants to attract a new generation of investors. This year's trading action suggests that something may need to change."

Berkshire bounces a bit as Wall Street sells off Berkshire Hathaway shares managed a modest gain this week even as Wall Street's major averages declined, a small departure from the 2026 "trading action" Bary cites. Both the Class A and Class B shares gained almost 0.9% while the S&P 500 fell by 0.8%. Until Friday's bounce, that benchmark index, along with the Dow Industrials and the Nasdaq Composite, had dropped four days in a row as oil and bond yields moved higher.