Wealth Solutions Expansion Will Open New Global Markets

Key Takeaways

• Expansion into new markets and strategic asset sales are enhancing Brookfield's revenue and earnings growth potential.
  
• Strong deployable capital and an active share repurchase strategy are expected to boost EPS and intrinsic value per share.
  
• Brookfield's dependency on favorable market conditions and potential risks from competition, policy changes, and market expansion could impact revenue growth and earnings stability.

Catalysts

An alternative asset manager and REIT/Real Estate Investment Manager firm focuses on real estate, renewable power, infrastructure and venture capital and private equity assets.

• Brookfield's Wealth Solutions business is scaling rapidly, both in the U.S. and through expansion into new markets like the U.K. and Japan. This is expected to drive increased revenue and cash flow, given the potential to originate over $25 billion of predictable liabilities annually.
  
• The Company is planning asset sales at attractive returns, contributing to carried interest, which forms a significant part of future earnings. As the market becomes more constructive, this is expected to elevate realizations and earnings over time.
  
• Brookfield's robust pipeline of high-quality assets and the expectation of favorable market conditions for 2025 should drive transaction activity. This momentum is anticipated to grow distributable earnings significantly.
  
• With approximately $160 billion deployable capital at hand, paired with a constructive market backdrop, Brookfield sees strong growth potential in earnings and cash flows, which could enhance intrinsic value per share, reflected in future revenue and overall financial performance.
  
• Active return through share repurchases is expected to enhance EPS. In 2024, Brookfield repurchased about $1 billion worth of shares and plans for more in 2025, leveraging its view of intrinsic value per share, which could support EPS growth by reducing the share count while maintaining or growing net income.

Brookfield Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brookfield's revenue will decrease by 54.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.5% today to 84.4% in 3 years time.
• Analysts expect earnings to reach $7.2 billion (and earnings per share of $4.34) by about May 2028, up from $473.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, down from 186.7x today. This future PE is greater than the current PE for the CA Capital Markets industry at 10.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Brookfield Future Earnings Per Share Growth

Risks

• The company remains highly dependent on strong market conditions for asset monetization, which could negatively impact distributable earnings if conditions become less favorable, affecting revenue growth.
  
• Continued market volatility and potential policy changes could impact Brookfield's ability to maintain high returns, potentially affecting overall earnings and intrinsic value.
  
• Increased competition from passive investing may lead to some businesses or subsidiaries being undervalued or overlooked in indexes, which could impact investor sentiment and market valuation, ultimately affecting revenue streams in the long run.
  
• The company's expansion into new markets like the U.K. and Japan carries inherent risks, including execution risks that could affect projected revenue growth and net margins if the strategy does not perform as expected.
  
• While Brookfield is capitalizing on current favorable financing conditions, rising interest rates or changes in credit markets could impact the cost of capital and financing structure, leading to higher expenses and lower net income.

Valuation

• The analysts have a consensus price target of CA$75.389 for Brookfield based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$92.37, and the most bearish reporting a price target of just CA$58.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.5 billion, earnings will come to $7.2 billion, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 11.0%.
• Given the current share price of CA$74.21, the analyst price target of CA$75.39 is 1.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.