Key Points
Brookfield has multiple powerful growth engines.
Management expects recurring earnings to more than double by 2031.
The stock could nearly double without multiple expansion.
I recently bought another 50 shares of Brookfield Corporation (NYSE:BN), adding to an already sizable investment in the global investment powerhouse. I believe the stock, which currently trades around $38 per share, could nearly double to $75 by 2031. That's actually a much more conservative forecast than management's own long-term valuation estimate.
Here's why I'm continuing to buy shares of this long-term compounding machine.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
Powerful compounding engines
My Brookfield thesis centers around its three interconnected growth engines:
- Asset management: Brookfield benefits from rising allocations by institutional and individual investors to private infrastructure, credit, real estate, and other alternative investments. Its asset-management platform earns recurring fees and potentially carried interest (its share of the additional returns above a specified threshold).
- Wealth solutions: Its insurance operations provide another source of long-duration capital that Brookfield can invest in assets producing attractive spreads. It's an important contributor to Brookfield's growth strategy.
- Operating businesses and capital allocation: Brookfield owns interests in infrastructure, renewable power, real estate, and other businesses. Rising demand for energy, digital infrastructure, and electrification can create opportunities to invest substantial capital at attractive rates of return.
Brookfield's platform has generated about $5.7 billion in distributable earnings (DE) before realizations over the last 12 months, more than double its total in 2021 ($2.7 billion). The company believes it can nearly double its DE before realizations by 2031 ($11.6 billion). Add in expected realizations, and Brookfield sees its earnings surging to $16.8 billion in five years.
It sees four powerful tailwinds driving growth over the next five years: electrification, digital infrastructure, real estate recovery, and an increase in investor allocations to alternatives. Each one represents a multi-trillion-dollar investment opportunity in the coming decades. The numbers are just staggering. For example, global strategy consultant EY-Parthenon estimates at least $4 trillion in AI compute infrastructure investment through 2035, while BloombergNEF sees a $6 trillion global energy grid build-out over that same period to support increased electrification (including AI data centers). Additionally, as populations age, more retirees are seeking long-term investment solutions like annuities. These megatrends all play into Brookfield's strengths.
Why I believe the stock could reach $75 in five years
Shares of Brookfield currently trade at around $38 per share. Brookfield's management team believes its stock is worth $67 per share based on its internal business valuation. Using those same measures, the company estimates its shares would be worth $140 by 2031. That's not an unreasonable view. It primarily requires a higher valuation multiple than the market is currently willing to give the company.
That's why I think $75 a share by 2031 is more realistic. It doesn't require the market to assign Brookfield a higher future valuation multiple (though I agree with management that it should). The math here is simple. Brookfield is currently generating $2.26 per share of distributable earnings before realizations and capital allocation (share repurchases and reinvestment). At $38 per share, Brookfield trades at 16.8 times earnings. The company expects to grow its DE before realizations and capital allocation to $4.90 a share by 2031. If we conservatively assign an even lower valuation multiple of 15.3 times earnings, Brookfield's stock would be worth about $75 per share in five years. There's significant upside if the market values its shares at a higher multiple or if Brookfield grows its earnings faster.
However, there are downside risks, too. Brookfield is betting heavily on the AI infrastructure build-out across its asset management and operating platforms. If AI fails to live up to its promise, its returns could suffer, impacting growth. Brookfield is also growing its private credit platform, a sector plagued with growing pains in recent years.
One of my highest conviction investments
There's no guarantee Brookfield's ambitious growth plans will materialize. However, with several powerful growth drivers and its shares trading at a reasonable earnings multiple, I strongly believe the company has a credible path to roughly double its stock price by 2031. That's why I recently bought another 50 shares, building upon what's one of the largest positions in my portfolio.
Matt DiLallo has positions in Brookfield Corporation. The Motley Fool has positions in and recommends Brookfield Corporation. The Motley Fool has a disclosure policy.