I’ve personally owned Berkshire Hathaway long enough to build up unrealized gains five times my initial investment. That hardly makes me unique. Whatever happens now will have huge consequences not just for shareholders, but for the industries it operates in as well. One of them is electricity.
Buffett started his utility empire building in the mid-1990s, acquiring over extended MidAmerican Energy. He took advantage of the post-Enron utility sector meltdown of 2001-02 to enter the natural gas pipeline business with a high priced loan toTroubled but asset rich PacifiCorp was the next major coup in 2005, extending holdings to the Pacific Northwest and Rocky Mountains. NV Energy in December 2013 added western scale at a price many shareholders thought too low.
Mainly, the company has arguably never overpaid. That discipline was demonstrated once again last year, when outbid it for Oncor, the electricity distribution and transmission assets of the former Texas Utilities. The winner got a good price, but only because Berkshire refused to be drawn into protracted bidding that would have eliminated any valuation advantage of buying these assets out of bankruptcy.
High utility stock valuations are one deterrent to a new Berkshire shopping spree. The Dow Jones Utility Average sells for 20.6 times trailing 12 months earnings, the highest level since the late 2000 peak. And the most recent utility merger to close was paying nearly 30 times earnings for Vectren, a utility with volatile construction operations and a low single digit growth rate. would seem to be an ideal addition for BHE. Customer growth of 2.
Sure there’s some nuclear exposure. But the Virginia-based company has been reliably growing revenue in three of BHE’s key areas of interest: Regulated electric utilities, contracted natural gas pipelines and renewable energy, including solar and electric vehicles.
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