Brookfield (BN) Shows Stability Despite Leverage Concerns

We've been asking ourselves recently if the market has placed a fair valuation on Brookfield. Let's dive into some of the fundamental values of this Large-Cap Real Estate company to determine if there might be an opportunity here for value-minded investors.

A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:

Brookfield Corporation is an alternative asset manager and REIT/Real Estate Investment Manager firm focuses on real estate, renewable power, infrastructure and venture capital and private equity assets. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 24.81 and an average price to book (P/B) ratio of 2.24. In contrast, Brookfield has a trailing 12 month P/E ratio of 74.9 and a P/B ratio of 1.26.

When we divideBrookfield's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.14, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.

Exceptional Profitability Overshadowed by Excessive Leverage:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $67,826 $62,752 $75,731 $92,769
Operating Margins 14.9% 15.1% 15.3% 15.2%
Net Margins 4.14% -0.21% 5.24% 2.22%
Net Income (MM) $2,807 -$134 $3,966 $2,056
Net Interest Expense (MM) -$7,227 -$7,213 -$7,604 -$10,702
Depreciation & Amort. (MM) -$4,876 -$5,791 -$6,437 -$7,683
Earnings Per Share $1.73 -$0.12 $2.39 $0.43
EPS Growth n/a -106.94% 2091.67% -82.01%
Diluted Shares (MM) 1,488 1,511 1,587 1,567
Free Cash Flow (MM) $3,275 $4,329 $993 $1,515
Capital Expenditures (MM) -$3,053 -$4,012 -$6,881 -$7,236
Net Current Assets (MM) -$168,102 -$175,916 -$199,992 -$246,005
Current Ratio 0.87 0.85 0.86 0.69
Long Term Debt (MM) $143,375 $148,401 $143,141 $170,777
Net Debt / EBITDA 9.89 11.65 8.03 9.11

Brookfield has growing revenues and increasing reinvestment in the business, strong margins with a stable trend, and generally positive cash flows. However, the firm suffers from declining EPS growth and a highly leveraged balance sheet.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.