Berkshire Hathaway or the S&P 500 over the Next Decade?

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Part 4
Berkshire Hathaway or the S&P 500 over the Next Decade? PART 4 OF 11

Berkshire’s Diversified Energy Holdings to Yield Stable Growth

Diversified investments in energy

Berkshire Hathaway (BRK.B) manages its energy portfolio and investments through its Berkshire Hathaway Energy or BHE subsidiary, in which the company currently holds a 90.2% stake. BHE has investments in utilities, upstream and downstream, and transmission.

BHE’s major subsidiary holdings include PacifiCorp, MidAmerican Energy, and NV Energy, and its diversified holdings have allowed it to hedge itself against fluctuating oil prices (USO) over the past few years. Oil prices are expected to see a range-bound movement of $40–$60 per barrel over the next few years due to competition between Saudi Arabian, Russian, US, and African producers.

Berkshire&#8217;s Diversified Energy Holdings to Yield Stable Growth

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In 2Q17, Berkshire’s BHE managed revenues of ~$4.6 billion, compared with $4.3 billion in 2Q16. This growth came mainly from higher revenues from MidAmerican, PacifiCorp, NV Energy, and real estate brokerages, partially offset by a subdued performance from Northern Powergrid. This performance could improve in coming quarters at stable rates due to the expected increase in power consumption.

Transmission and utilities

Berkshire hasn’t looked for acquisitions in utilities beyond the Americas, and there is no indication of any acquisitions internationally on the horizon. However, Berkshire’s new managers can expand their portfolio and hedge it from a regional perspective by investing in Europe and Asia.

In 2Q17, BHE’s EBT (earnings before tax) increased to $670 million, compared with $666 million in 2Q16. Its operating earnings were helped by growth in NV Energy, and real estate brokerage, partially offset by a decline in natural gas pipelines, MidAmerican, Northern Powergrid, and other energy businesses.

Notably, Berkshire Hathaway faces competition from utilities (XLU) and alternative managers (XLF) such as Blackstone Group (BX), Carlyle Group (CG), and KKR (KKR).


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