Engineering & Construction company Brookfield is taking Wall Street by surprise today, falling to $54.91 and marking a -5.9% change compared to the S&P 500, which moved -2.0%. BN is -13.82% below its average analyst target price of $63.71, which implies there is more upside for the stock. Over the last year, Brookfield shares have outstripped the S&P 500 by 18.7%, with a price change of 41.0%.
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 is part of the real estate sector, which is mostly composed of REITs (Real Estate Investment Trusts). But there are a few real estate development and service companies included in the sector as well. While the value of REIT tracks the value of underlying investments in real property, the value of shares in real estate companies depends not only on the economic factors affecting the real estate market generally, but also investor perceptions regarding the future of the company.
Brookfield's trailing 12 month P/E ratio is 119.4, based on its trailing EPS of $0.46. The company has a forward P/E ratio of 9.4 according to its forward EPS of $5.87 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the real estate sector has an average P/E ratio of 31.12, and the average for the S&P 500 is 29.3.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Brookfield was $698.0 Million as of its last annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In BN's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-29657333333.3 and they've been growing at an average rate of 0.4%.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Brookfield's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2.01, but is still below the average P/B ratio of the Real Estate sector, which stood at 2.15 as of the third quarter of 2024.
Since it has a higher P/E ratio than its sector average, an average P/B ratio, and negative cash flows with a flat trend, Brookfield is likely overvalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and negative net margins with a negative growth trend. We hope you enjoyed this overview of BN's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
