Hedge fund manager Tilson thinks Buffett's Berkshire is a great buy, worth 19% more

Published Fri, May 5 201710:22 AM EDTUpdated Fri, May 5 20172:51 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Whitney Tilson of Kase Capital said Warren Buffett 's Berkshire Hathaway should climb 19 percent just based on the value of the conglomerate's holdings. Tilson estimates Class A shares of the Buffett conglomerate have an intrinsic value of $296,000 a share, 18.6 percent above $249,540, where they closed Thursday. One year out, Tilson expects the shares to have a value about 30 percent more of $324,000 each. "Buffett is doing a good job investing — the latest examples being Precision Castparts, Kraft and Duracell — but the cash is coming in so fast, a high-class problem!" Tilson said in a presentation Thursday. Tilson expects that in two years, "Berkshire will generate free cash flow equal to the $32.7 billion" paid for Precision Castparts. Berkshire trading below intrinsic value Source: Kase Capital. *Investments per share plus 12x pre-tax earnings per share through 2007, then an 8x multiple from 2008-2010, and a 10x multiple thereafter. Buffett told CNBC's " Squawk Box " Friday that his company has $90 billion in cash, and he's looking to "buy a big business." Berkshire holds its annual shareholder meeting this weekend. Tilson famously shorted Lumber Liquidators and spoke in 2015 on CBS' "60 Minutes" about illegally high levels of toxic chemicals in some of the firm's Chinese-made flooring material. A risk to Tilson's view on Berkshire is that as Buffett nears 90 years old, Berkshire suddenly loses its leader. Source: Kase Capital But Tilson's reading of the tea leaves still sees Buffett as a physically and mentally capable investor who will likely run the conglomerate for at least five more years. The hedge fund manager also puts a 50 percent probability the legendary investor will lead Berkshire for 10 more years. Tilson compared Buffett with Apple founder Steve Jobs, who delegated tasks to others as his health began to fail. Shares of Apple fell less than 1 percent in the initial reaction to Jobs' retirement and death, Tilson's analysis showed. An analogy with Apple & Steve Jobs Source: Kase Capital As for Berkshire, shares are up more than 15 percent over the last 12 months, and Tilson expects the stock to move higher regardless of near-term leadership changes. "The value of the cash and bonds won't change, and Wells Fargo , Kraft Heinz , Coke , American Express , Burlington Northern, GEICO, etc. will continue to generate robust earnings even after Buffett is no longer running Berkshire," Tilson said in the report. "Buffett has built a powerful culture that is likely to endure." Tens of thousands of shareholders are expected to attend Berkshire Hathaway's annual shareholder meeting this weekend in Omaha, Nebraska. — CNBC's Matthew J. Belvedere contributed to this report. Disclaimer

Warren Buffett

David A. Grogan | CNBC

Whitney Tilson of Kase Capital said Warren Buffett's Berkshire Hathaway should climb 19 percent just based on the value of the conglomerate's holdings.

Tilson estimates Class A shares of the Buffett conglomerate have an intrinsic value of $296,000 a share, 18.6 percent above $249,540, where they closed Thursday. One year out, Tilson expects the shares to have a value about 30 percent more of $324,000 each.