Berkshire Hathaway will unveil its earnings results for the third quarter on Saturday. The earnings from the Omaha-based conglomerate are extensively analysed by investors across the globe for insights into how the economic tide is shifting given the vast amount of subsidiaries the company holds. Despite the uncertainties surrounding supply chain bottlenecks, the company has been a standout performer against the broader market since the beginning of the year.

A bet on the ever-rising US prosperity?

The Omaha-based conglomerate acts as a holding company, investing primarily in a diverse portfolio of subsidiary businesses operating within railroads, utilities, manufacturing, retail, service, and the insurance and reinsurance sectors. The fundamental idea behind every acquisition was to transform the company into an entity that resembles the broader US economy.

Berkshire’s insurance and reinsurance segment is considered the growth engine behind the conglomerate’s success, having two distinct activities, underwriting and investing. Through the utilization of synergies within the company’s diverse portfolio of subsidiaries, Berkshire is able to invest cash generated from all its businesses. This provides the advantage of allocating more capital to equities, helping the company outperform traditional insurers who primarily invest in bonds.

Other important segments are Berkshire Hathaway Energy (BHE) and Burlington Northern Santa Fe (BNSF), both operating inside oligopoly markets. BHE generates, stores, transmits, and distributes energy within the US, while BNSF operates one of the largest railroad systems in North America, with its financial performance closely correlated with the expansion of the US economy.

Earnings could once again turn the focus on cash

According to Refinitiv estimates, analysts target $70.42 billion in revenues for the third quarter, which would mark a decline of 25.6% from the same quarter last year. In contrast, earnings per share (EPS) for its class B stock are expected to clock in at $2.99, representing an increase of almost 30% over the same period. On the upcoming earnings call, investors will be anticipating an optimistic note from management regarding the ongoing supply challenges, and waiting to applaud the company’s share buybacks for the quarter.

However, investors will once again focus and criticise the immense amount of cash that Berkshire currently holds. During the market selloff in February, 2020, Berkshire’s CEO, Warren Buffett, didn’t behave like his usual opportunistic self. The ‘Oracle of Omaha’ admitted that his company had made very few moves this time around missing several opportunities, as huge government spending and liquidity injections form Central Banks put markets back on track.

It is no news that Buffett currently believes that equities are overvalued and is waiting to capitalize on a potential selloff, which makes Berkshire Hathaway one of the best places to be when things go south.

Is Berkshire falling behind ESG factors?

Despite its strong long-term returns compared to the broader market, Berkshire appears to be lagging on environmental, social and governance (ESG) metrics. In the past, when challenged by shareholders, Berkshire’s CEO, Warren Buffett, said that ‘believing that climate change is real on a personal basis does not mean believing it should be the basis for investment decisions’.

This hardline approach followed by the senior management has led the largest asset manager and biggest force in ESG investing, BlackRock, to single out the company on concerns that it is not adapting in a world where sustainability considerations are becoming material to performance. A potential exclusion of Berkshire Hathaway from the index mutual funds that BlackRock currently provides could negatively affect the demand for the company’s stock, presenting a material downside risk.

Is another record high in sight?

Berkshire’s stock has rallied by over 26% in 2021, with further gains on the table should the company witness positive earnings surprises. Better-than-expected results could push the price above its 292.20 resistance level. Overcoming this barrier, the price could test its all-time highs at 295.08, before entering uncharted barriers, possibly targeting the 300 psychological mark.

To the downside, should the results come out worse-than-expected, the price could seek immediate support at the 285.20 barrier. Moving below that level, the bears might send the price to test the strong region where the 281.40 level and the 50-day simple moving average (SMA) are currently located, before shifting attention towards the 275.60 barrier.

Is Berkshire a worthwhile buy?

Analysing the company’s investments throughout the years illustrates the ability of management to follow an investment strategy that is reasonable in terms of understanding the macroeconomic environment, accounting metrics and specific business conditions. The company currently has a highly competent management team, an immense pile of cash flows and great brands under its portfolio. Therefore, the long-term outlook of Berkshire Hathaway’s business model strongly suggests that patient investors could generate respectable returns even after the imminent replacement of the company’s iconic CEO, Warren Buffett, by the long-term BHE’s CEO, Greg Abel.