Shares of Brookfield (BN -0.49%) rallied by 15.8% in November, according to data provided by S&P Global Market Intelligence. The leading global investment firm got boosts both from its third-quarter results and from news that notable billionaire investor Bill Ackman had loaded up on its stock.
Dual catalysts
Brookfield reported its third-quarter results in mid-November. The investment firm posted a record $1.3 billion in distributable earnings before realizations, a 19% rise from the prior-year period.
Its asset management business grew its fee-related earnings by 14%, driven by a 23% increase in fee-related capital. The company also completed its strategic partnership transaction with Castlelake and closed on its acquisition of SVB Capital through its Pinegrove Capital Partners venture investment platform with Sequoia Heritage. Those deals will enhance its growth prospects.
The company also reported solid results in its wealth solutions business and in its operating businesses. The wealth solutions segment is on track to grow its annualized earnings from $1.5 billion today to $2 billion in the near term. Meanwhile, its operating businesses are generating resilient earnings, while its core real estate portfolio is growing its net operating income at a solid clip (4% last quarter).
Brookfield’s strong results and growth prospects have caught the attention of billionaire investor Bill Ackman, who runs the hedge fund Pershing Square. In his 13F filing with the Securities and Exchange Commission last month, Ackman revealed that in Q3, he increased Pershing Square’s stake in Brookfield nearly five-fold to almost 33 million shares. That position was worth over $1.7 billion, accounting for roughly 14% of the assets of his hedge fund.
Ackman makes concentrated bets on opportunities he believes will deliver outsized returns. He sees such an opportunity in Brookfield. The company is benefiting from the growth in alternative asset management through its 73% stake in Brookfield Asset Management, which now oversees over $1 trillion in assets. It also owns stakes in operating companies focused on renewable energy and infrastructure, sectors experiencing accelerating growth prospects.
Is Brookfield still a buy after last month’s surge?
Brookfield is now trading at over $60 per share. That’s still well below the $84 a share Brookfield estimates as its fair value.
It believes its best days lie ahead, and sees itself being in a better position than ever before to hit its target of delivering returns of 15% or more to investors. It expects the growth of its asset management and wealth solutions businesses will help support more than 20% annual cash flow growth over the next five years. That would give it about $47 billion in free cash to allocate to create additional value for shareholders.
These factors drive management’s view that it can grow the company’s value at a 16% compound annual rate for the next five years, which would put its value at $176 per share by 2029. That implies Brookfield could produce total annual returns in excess of 25% over the next few years. Given those expectations, the stock still looks like an attractive investment opportunity even after its rally in November.
Matt DiLallo has positions in Brookfield Asset Management and Brookfield Corporation and has the following options: short January 2025 $60 calls on Brookfield Corporation. The Motley Fool has positions in and recommends Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool has a disclosure policy.
