Brookfield Corporation (BN) Stock Analysis
Brookfield Corporation (BN) Stock Analysis
Market Capitalization: $87.11 Billion
Shares Outstanding: 1.51 Billion
Sector: Financial Services
Industry: Asset Management
Analysis as of: January 3, 2025
1. Company Overview
Brookfield Corporation (NYSE: BN) is a global alternative asset manager with a focus on real estate, renewable power, infrastructure, and private equity. Established in 1899, Brookfield has evolved into one of the largest and most diversified asset managers in the world, leveraging its deep industry expertise and operational capabilities to generate long-term value for its investors. The company’s mission is to acquire and actively manage high-quality assets, driving sustainable growth and delivering superior returns.
Key Business Segments:
- Real Estate:
- Commercial Properties: Investment and management of office buildings, retail centers, and industrial properties across major global markets.
- Residential Properties: Development and management of residential complexes, focusing on high-demand urban areas.
- Renewable Power:
- Hydroelectric Plants: Ownership and operation of hydroelectric facilities contributing to Brookfield’s renewable energy portfolio.
- Wind and Solar Farms: Investments in wind and solar energy projects aimed at expanding sustainable energy solutions.
- Infrastructure:
- Utilities and Transportation: Investments in essential infrastructure assets, including utilities, transportation networks, and telecommunications.
- Energy Infrastructure: Management of pipelines, storage facilities, and energy distribution networks.
- Private Equity:
- Growth Capital: Providing capital to high-growth companies across various industries to support expansion and innovation.
- Buyouts and Strategic Investments: Acquiring and managing stakes in established businesses to enhance operational performance and market positioning.
Strategic Initiatives:
- Global Expansion: Continues to penetrate emerging markets, enhancing its global footprint and diversifying its asset base across different geographical regions.
- Sustainability and ESG Integration: Committed to integrating Environmental, Social, and Governance (ESG) principles into its investment strategies, promoting sustainable and responsible asset management.
- Operational Excellence: Focuses on optimizing asset performance through active management, operational improvements, and strategic repositioning of investments.
- Technology and Innovation: Invests in technological advancements to enhance asset management capabilities, improve operational efficiencies, and drive innovation across its portfolio.
a. Revenue and Growth
TTM Revenue (as of Sep 30, 2024): $93.22 Billion
YoY Revenue Growth (TTM): -4.42%
Analysis:
- Declining Revenue Growth: Brookfield has experienced a decline in revenue growth with a YoY decrease of -4.42% in the TTM period. This downturn may be attributed to market saturation, increased competition, or underperformance in key asset segments.
- Historical Growth Volatility: The company showcased robust revenue growth in FY 2022 (+22.00%) and FY 2021 (+24.75%), indicating strong performance and successful asset acquisitions. However, the decline in FY 2023 (+2.74%) and the negative growth in the TTM period highlight challenges in maintaining consistent growth.
- Revenue Sustainability: The fluctuating revenue growth rates suggest potential volatility in Brookfield’s asset performance and market conditions. Diversification across multiple asset classes may help mitigate some risks, but the recent decline warrants cautious evaluation.
b. Profitability
Net Income (TTM): $738.00 Million
EPS (TTM): $0.47
Profit Margin: 0.79%
Return on Equity (ROE): 2.93%
Return on Assets (ROA): 2.42%
Return on Capital (ROIC): 2.93%
Analysis:
- Low Profitability: Brookfield reported a net income of $738.00 million with a minimal profit margin of 0.79%, indicating tight profit generation relative to its revenue. This low margin may result from high operating costs, increased interest expenses, or inefficiencies in asset management.
- Negative Earnings Per Share (EPS) Growth: The EPS has declined by -48.66%, reflecting deteriorating profitability and potential challenges in maintaining earnings growth.
- Weak Return Metrics: ROE of 2.93%, ROA of 2.42%, and ROIC of 2.93% signify underperformance in utilizing shareholder equity, assets, and invested capital to generate returns. These low metrics may raise concerns about the effectiveness of management and the profitability of investments.
c. Margins
Gross Margin (TTM): 24.34%
Operating Margin (TTM): 20.40%
Profit Margin (TTM): 0.79%
Analysis:
- Moderate Gross Margin: A gross margin of 24.34% indicates Brookfield’s ability to manage the cost of revenue, but it remains relatively low compared to industry standards, suggesting potential inefficiencies or high operational costs.
- Declining Operating Margin: Operating margin of 20.40% reflects the company’s ability to control operating expenses, yet the low profit margin points to challenges in converting operating income into net profits effectively.
- Tight Profitability: The minimal profit margin highlights the thin cushion Brookfield has in turning revenue into actual profits, which could be a concern for investors seeking consistent profitability.
d. Cash Flow
Operating Cash Flow (TTM): $5.91 Billion
Capital Expenditures (CapEx) (TTM): -$10.72 Billion
Free Cash Flow (FCF) (TTM): -$4.81 Billion
FCF Per Share: -$3.19
Analysis:
- Negative Free Cash Flow: Brookfield reported a negative free cash flow of -$4.81 billion, indicating that the company is spending more on capital expenditures than it is generating from its operations. This situation raises concerns about the sustainability of ongoing investments and the ability to fund operations without external financing.
- Declining Operating Cash Flow: Operating cash flow has decreased by -25.74%, reflecting reduced cash generation from core business activities, which could impact the company’s ability to support growth initiatives and meet financial obligations.
- High Capital Expenditures: Significant capital expenditures of -$10.72 billion suggest ongoing investments in asset acquisitions and infrastructure. While such investments can drive future growth, the current negative free cash flow indicates potential liquidity challenges.
3. Balance Sheet
Total Assets: $508.14 Billion
Total Liabilities: $338.25 Billion
Shareholders’ Equity: $169.90 Billion
Total Debt: $252.31 Billion
Cash & Cash Equivalents: $11.82 Billion
Net Cash Position: -$240.48 Billion
Debt-to-Equity Ratio: 1.49
Current Ratio: 1.52
Quick Ratio: 0.88
Working Capital: $19.03 Billion
Analysis:
- Negative Net Cash Position: Brookfield’s net cash position of -$240.48 billion indicates a substantial reliance on debt financing, raising concerns about financial stability and the ability to service debt obligations, especially in adverse market conditions.
- High Financial Leverage: A debt-to-equity ratio of 1.49 signifies significant leverage, increasing financial risk. High leverage can amplify returns but also heightens vulnerability to economic downturns and interest rate fluctuations.
- Adequate Liquidity: A current ratio of 1.52 and working capital of $19.03 billion suggest that Brookfield has sufficient liquidity to meet its short-term obligations, despite the high debt levels.
- Low Quick Ratio: A quick ratio of 0.88 indicates that Brookfield may face challenges in covering its immediate liabilities without relying on inventory or other less liquid assets.
- Asset Quality: The substantial total assets of $508.14 billion provide a broad asset base, but the high debt levels relative to assets and equity raise questions about asset liquidity and overall financial health.
4. Valuation
Current Stock Price (Jan 3, 2025): $57.55
PE Ratio (TTM): 118.03
Forward PE: N/A
Price-to-Operating Cash Flow (P/OCF) Ratio: 14.74
EV/EBITDA: 14.98
EV/Sales: 4.62
PEG Ratio: 3.46
Analysis:
- Extremely High PE Ratio: A trailing PE ratio of 118.03 indicates that Brookfield is trading at a significant premium relative to its earnings. Such a high PE suggests that investors have strong growth expectations, but it also raises concerns about potential overvaluation and limited upside potential.
- Valuation Relative to Sales and EBITDA: With an EV/Sales ratio of 4.62 and EV/EBITDA of 14.98, Brookfield appears moderately valued in terms of revenue and earnings before interest, taxes, depreciation, and amortization. However, the high PE ratio remains a critical concern.
- High PEG Ratio: A PEG ratio of 3.46 suggests that Brookfield may be overvalued relative to its growth prospects. Investors should carefully assess whether the company’s growth trajectory justifies the elevated valuation metrics.
- Limited Forward Valuation Data: The absence of a forward PE ratio limits the ability to evaluate expected future earnings relative to the current stock price, making it challenging to assess growth expectations comprehensively.
5. Market Performance
52-Week Range: $37.79 – $62.44
52-Week Price Change: +48.78%
Beta (5Y): 1.75
Relative Strength Index (RSI): 50.18
Average Volume (20 Days): 1,206,370
Short Selling Information:
- Short Interest: 10.13 Million
- Short Previous Month: 11.85 Million
- Short % of Shares Out: 0.67%
- Short % of Float: 0.76%
- Short Ratio (days to cover): 7.46
Analysis:
- Strong Price Appreciation: Brookfield’s stock has appreciated by +48.78% over the past 52 weeks, trading within a range of $37.79 to $62.44. This significant increase reflects investor optimism and positive market sentiment, possibly driven by strategic asset acquisitions and favorable market conditions.
- High Volatility: A beta of 1.75 indicates that Brookfield’s stock is significantly more volatile than the broader market, subjecting it to higher price fluctuations in response to market movements and company-specific news.
- Neutral RSI: An RSI of 50.18 suggests that the stock is neither overbought nor oversold, indicating balanced buying and selling pressure without immediate signs of a price reversal.
- Moderate Short Interest: With a short interest of 10.13 million shares (0.67% of shares outstanding and 0.76% of float), there is minimal bearish sentiment among investors. A short ratio of 7.46 days to cover indicates limited short-term bearish pressure, reducing the likelihood of a short squeeze.
- Average Trading Volume: An average volume of approximately 1,206,370 over the past 20 days signifies moderate liquidity, facilitating ease of trading for investors.
6. Financial Health and Risks
a. Liquidity
Current Ratio: 1.52
Quick Ratio: 0.88
Working Capital: $19.03 Billion
Analysis:
- Adequate Liquidity: A current ratio of 1.52 and working capital of $19.03 billion indicate that Brookfield has sufficient liquidity to meet its short-term obligations, reducing the risk of liquidity issues.
- Low Quick Ratio: A quick ratio of 0.88 suggests that Brookfield may rely on inventory or other less liquid assets to cover its immediate liabilities, potentially posing challenges during periods of financial stress.
b. Leverage
Total Debt: $252.31 Billion
Debt-to-Equity Ratio: 1.49
Debt-to-EBITDA Ratio: 8.77
Interest Coverage Ratio: 1.14
Analysis:
- High Financial Leverage: A debt-to-equity ratio of 1.49 indicates significant reliance on debt financing, increasing financial risk. High leverage can amplify returns but also heightens vulnerability to economic downturns and interest rate hikes.
- Concerning Debt Ratios: A debt-to-EBITDA ratio of 8.77 and an interest coverage ratio of 1.14 suggest that Brookfield may struggle to service its debt from earnings. The low interest coverage ratio indicates limited capacity to cover interest expenses, raising concerns about potential solvency issues.
- Negative Net Cash Position: Brookfield’s net cash position of -$240.48 billion further exacerbates financial risk, as the company holds more debt than cash, increasing vulnerability to adverse economic conditions and limiting financial flexibility.
c. Profitability & Cash Flow
- Weak Profitability: With a net income of $738.00 million and a profit margin of 0.79%, Brookfield exhibits minimal profitability relative to its revenue, raising concerns about its ability to generate sustainable profits.
- Negative Free Cash Flow: A negative free cash flow of -$4.81 billion indicates that Brookfield is investing more in capital expenditures than it is generating from operations, potentially straining liquidity and necessitating external financing.
- Declining Operating Cash Flow: Operating cash flow has decreased by -25.74%, reflecting reduced cash generation from core business activities, which could impact the company’s ability to support growth initiatives and meet financial obligations.
d. Operational Risks
- Market Competition: The asset management and alternative investments sectors are highly competitive, with numerous established players and new entrants. Maintaining market share requires continuous innovation, effective marketing, and strategic partnerships.
- Regulatory Compliance: Brookfield operates in multiple jurisdictions, navigating complex regulatory environments, including investment regulations, tax laws, and environmental standards. Non-compliance can result in fines, operational restrictions, and reputational damage.
- Economic Sensitivity: Brookfield’s performance is sensitive to macroeconomic conditions, including interest rates, economic growth, and market volatility, which can influence asset valuations, investment returns, and overall financial performance.
- Asset Performance: The success of Brookfield’s investment strategy relies heavily on the performance of its asset portfolio. Poor asset performance or mismanagement can lead to significant losses and diminished returns.
e. Market & Regulatory Risks
- Interest Rate Changes: Fluctuations in interest rates can impact Brookfield’s borrowing costs and the valuation of its debt, affecting profitability and financial stability.
- Regulatory Changes: Changes in investment regulations, taxation policies, and industry-specific laws can affect Brookfield’s operations, cost structures, and strategic initiatives.
- Technological Advancements: Rapid advancements in technology require continuous investment in infrastructure and systems to maintain operational efficiency and competitive advantage.
- Geopolitical Risks: Brookfield’s global operations expose it to geopolitical risks, including trade tensions, political instability, and changes in government policies, which can disrupt business operations and impact asset performance.
7. Conclusion
Pros:
- Diverse Asset Portfolio: Brookfield’s investments across real estate, renewable power, infrastructure, and private equity provide diversification, potentially mitigating risks associated with any single asset class.
- Strong Market Position: As a leading global alternative asset manager, Brookfield leverages its extensive experience and industry expertise to identify and manage high-quality assets.
- Positive Working Capital: Working capital of $19.03 billion indicates Brookfield’s ability to fund ongoing operations and invest in growth opportunities without immediate external financing.
- Consistent Dividend Payments: Brookfield pays an annual dividend of $0.32 (0.55%), providing income to shareholders with a consistent dividend payout history.
Cons:
- High Valuation Ratios: With a trailing PE ratio of 118.03, Brookfield is trading at a significant premium relative to its earnings, raising concerns about potential overvaluation and limited upside potential.
- Negative Free Cash Flow: The negative free cash flow of -$4.81 billion indicates that Brookfield is investing heavily in capital expenditures without generating sufficient cash from operations, potentially straining liquidity.
- High Financial Leverage: A debt-to-equity ratio of 1.49 and a debt-to-EBITDA ratio of 8.77 suggest significant reliance on debt financing, increasing financial risk and vulnerability to economic downturns.
- Low Profit Margins: Minimal profit margin of 0.79% reflects challenges in converting revenue into substantial net profits, raising concerns about operational efficiency and cost management.
- Negative Net Cash Position: A net cash position of -$240.48 billion highlights Brookfield’s high debt levels relative to its cash reserves, increasing financial risk and limiting financial flexibility.
- Weak Return Metrics: ROE of 2.93%, ROA of 2.42%, and ROIC of 2.93% indicate underperformance in utilizing shareholder equity, assets, and invested capital to generate returns, signaling potential inefficiencies in management and operations.
- Concerning Interest Coverage: An interest coverage ratio of 1.14 suggests limited ability to cover interest expenses from earnings, raising concerns about Brookfield’s capacity to service its debt obligations.
- Low Dividend Yield: While Brookfield pays dividends, the yield of 0.55% is relatively low compared to some income-focused investments, potentially reducing its attractiveness to income-oriented investors.
- Altman Z-Score Below Critical Threshold: An Altman Z-Score of 0.51, below the critical threshold of 3.0, suggests an increased risk of bankruptcy, indicating potential financial distress.
Final Note
Brookfield Corporation operates within the complex and highly competitive asset management and alternative investments sector, leveraging its diverse asset portfolio and global presence to drive growth and profitability. However, the company’s substantial financial leverage, negative free cash flow, and low profitability metrics raise significant concerns about its financial stability and operational efficiency. The extremely high valuation ratios and a low Altman Z-Score further emphasize the elevated financial risks associated with Brookfield.
Disclaimer:
This analysis is for informational purposes only and does not constitute investment advice. Investing involves risks, including potential loss of principal. Past performance is not indicative of future results. Consult a qualified financial advisor before making any investment decisions.