Infrastructure Expansion And Capital Recycling Drive Dynamic Growth Amidst Global Challenges

Key Takeaways

• Acquisition of Indian telecom tower sites strengthens global position, improves synergies, and boosts earnings through positive FFO yield.
  
• Strong growth anticipated from organic projects, data centers, and capital recycling, leveraging decarbonization and digitalization trends for future revenue.
  
• Political risks, currency fluctuations, and high borrowing costs challenge Brookfield's earnings and revenue stability, particularly impacting the Midstream segment and foreign revenue streams.

Catalysts

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

• The acquisition of Indian telecom tower sites, making Brookfield Infrastructure the largest telecom tower operator in India and the second largest globally, is expected to generate operating synergies and a strong FFO yield, likely impacting earnings positively.
  
• The $8 billion backlog of organic growth projects, driven by demand for AI and power infrastructure, along with a $4 billion shadow backlog, suggests robust revenue growth potential as these projects are realized.
  
• The ongoing expansion of the data center platform, with significant megawatt capacity additions and successful leasing activity, is expected to drive future revenue and earnings growth.
  
• Capital recycling initiatives, anticipated to generate $5 billion to $6 billion through asset sales in the next two years, should allow for reinvestment in higher-yielding opportunities, enhancing future revenue and earnings.
  
• The focus on decarbonization and digitalization themes creates pathways for significant new investments and organic growth, supporting higher future revenues and cash flows.

Brookfield Infrastructure Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brookfield Infrastructure Partners's revenue will grow by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.7% today to 4.6% in 3 years time.
• Analysts expect earnings to reach $980.4 million (and earnings per share of $2.44) by about November 2027, up from $-153.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2027 earnings, up from -103.6x today. This future PE is lower than the current PE for the US Integrated Utilities industry at 20.4x.
• Analysts expect the number of shares outstanding to decline by 4.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.89%, as per the Simply Wall St company report.

Brookfield Infrastructure Partners Future Earnings Per Share Growth

Risks

• Higher borrowing costs and foreign exchange fluctuations, such as the depreciation of the Brazilian real, have partially offset Brookfield Infrastructure's financial performance, impacting net margins and earnings.
  
• The Midstream segment experienced a decline in funds from operations due to capital recycling activities and higher interest costs, which could affect overall earnings and net margins from this segment.
  
• The execution of Brookfield Infrastructure's capital recycling strategy depends on the successful sale of mature assets, which carries risk; any delays or inability to sell at expected values could impact liquidity and earnings.
  
• Political and regulatory changes stemming from elections in countries where Brookfield Infrastructure operates could pose risks to business operations, potentially affecting revenue stability and growth.
  
• Sustained strength of the U.S. dollar and its impact on the value of foreign revenue streams might reduce Brookfield Infrastructure's reported revenue and profitability figures when converted to U.S. dollars.

Valuation

• The analysts have a consensus price target of $39.55 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 $50.0, 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 2027, revenues will be $21.2 billion, earnings will come to $980.4 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 7.9%.
• Given the current share price of $34.31, the analyst's price target of $39.55 is 13.2% 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.