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 79.7 and a P/B ratio of 1.34.
When we divideBrookfield's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.13, 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.
