Digitalization Trend Will Drive Investments In Data Centers, Towers, And Fiber Networks

Key Takeaways

• The data segment's growth from digitalization trends positions the company for substantial revenue and earnings increases from data infrastructure investments.
  
• Capital recycling and strategic asset sales are expected to fund future growth initiatives, boosting EPS and enhancing shareholder value.
  
• Capital allocation and economic factors, like a strong dollar and interest rates, could pressure profitability by impacting future revenue streams and net margins.

Catalysts

Owns and operates utilities, transport, midstream, and data businesses in North and South America, Europe, and the Asia Pacific.

• The company's data segment is expected to become the largest sector within five years, driven by the digitalization trend, which will fuel investments in data centers, towers, and fiber networks. This positions the company to achieve significant revenue and earnings growth as these projects come online.
  
• The midstream segment is witnessing a robust growth pipeline with over $1 billion in backlog projects and potential for an additional $2-3 billion in expansions. These projects, primarily brownfield expansions with attractive build multiples, are expected to significantly boost revenue and earnings.
  
• The transport segment saw a 40% increase in FFO, with new acquisitions and higher volumes in rail and road networks driving growth. The expected monetization of mature transport assets is anticipated to provide capital for reinvestment, potentially improving net margins and earnings.
  
• Inflation indexing across essential service businesses is anticipated to enhance organic growth into 2025, leading to increased revenue from inflation-linked contracts while interest costs remain fixed, thereby improving net margins and bottom-line cash flow.
  
• The company's capital recycling efforts, including strategic asset sales generating $5-6 billion over the next two years, should provide liquidity to fund future growth initiatives at attractive returns, driving EPS growth and enhancing shareholder value.

Brookfield Infrastructure Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brookfield Infrastructure Partners's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $1.85) by about March 2028, up from $57.0 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 21.9x on those 2028 earnings, down from 232.2x today. This future PE is about the same as the current PE for the US Integrated Utilities industry at 21.9x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Brookfield Infrastructure Partners Future Earnings Per Share Growth

Risks

• The sale of a minority equity interest in a portfolio of fully contracted containers might limit future revenue streams if capital recycling reduces exposure to profitable segments. This could impact future revenues.
  
• The successful execution risk of upcoming development activities and new investment opportunities, especially since much of the data segment's value is not reflected in current financial results and depends on projects coming online as planned. This could impact future earnings.
  
• A stronger U.S. dollar may influence where capital is best deployed, potentially increasing exposure to currency risk and affecting profit margins from international operations. This could impact net margins.
  
• Potential for development premiums to compress in the hyperscale data center market due to high activity levels, which could diminish returns on new investments or backlog. This could impact future earnings.
  
• Interest rate rises and elevated long-term interest rates could increase financing costs and put pressure on profitability if the economic outlook deteriorates or inflation indexing does not fully offset elevated costs. This could impact net margins.

Valuation

• The analysts have a consensus price target of $40.417 for Brookfield Infrastructure Partners 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 $53.0, and the most bearish reporting a price target of just $34.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.6 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $28.66, the analyst price target of $40.42 is 29.1% higher.
  
• 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.