Leucadia, An Appealing Mini-Berkshire Hathaway

By Ryan C. Fuhrmann | March 30, 2012 AAA

New York-based Leucadia National Corp. (NYSE:LUK) operates a conglomeration of businesses across a wide array of industries. Leucadia has drawn comparisons to Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) for its go-anywhere style, as well as the stellar performance track record it has built over the past three decades. A current share price trading near book value could end up being a solid entry point for prospective investors.
Company Overview
Leucadia's business interests span beef processing, manufacturing, real estate, wineries, and casino gambling. Its interests in public companies are the easiest to track, given there is public information available on these firms. Large positions include a 28.2% stake in investment banking firm Jefferies (NYSE:JEF), which is worth approximately $1.2 billion based on Jefferies' current market value of $4.1 billion. A more recent investment is a 27.3% stake in Mueller (NYSE:MLI), currently valued at $478 million, or 17% above Leucadia's original cost basis. Mueller manufacturers plumbing and related products made of copper, brass, plastic and aluminum.

Its private interests consist of a 78.9% interest in beef packager National Beef Packing Company, lumber maker Idaho Timber, lightweight plastics manufacturer Conwed Plastics, a collection of wineries on the West coast, as well as the Hard Rock Hotel & Casino in Biloxi Mississippi.

Recent Developments
For all of 2011, Leucadia reported total revenues of $1.6 billion and net income of only $25.2 million, or 10 cents per share. Sales grew from $1.3 billion in 2010, though profits were down substantially from $2 billion, or $7.97 per share. Given the collection of businesses and variety of accounting standards needed to reflect varying ownership levels and buying and selling activity, earnings trends and levels are not necessarily the best way to analyze Leucadia.

The Bottom Line
Instead, and in similar fashion to Berkshire, Leucadia provides details on how book value has grown over time. Between 1979 and 2010, book value grew at an annualized rate of 21.5%, well ahead of the growth of the stock market of 8.2% over this same period. Proving that stock prices follow the underlying fundamentals of a business over the long haul, during this time frame Leucadia's stock has returned 20.2% annually.

Leucadia reported year end book value of $25.24 per common share. This is right about where the stock trades currently. This is below the five-year average price to book multiple of 1.4x and also below the stock market average of 1.3x. Overall then, this could represent a great opportunity to hop on board a management team that clearly knows how to create shareholder value over the long term; its reported book value likely understates what its businesses are worth based on current market values.

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At the time of writing Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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