Valued at a market cap of $34 billion, Brookfield Asset Management (TSX: BAM) provides alternative asset management services. Its renewable power and transition business owns, operates, and develops hydroelectric, wind, solar, and energy transition power generating assets. BAM’s infrastructure business operates in multiple segments, such as utilities, transport, midstream, data, and sustainable resource assets. It also operates in other segments, such as real estate and private equity.
BAM stock went public two years back and has since returned over 80% to shareholders. It also pays shareholders an annual dividend of US$1.52 per share, translating to a forward yield of 2.7%. Let’s see if Brookfield Asset Management stock can continue to deliver outsized gains in 2025.
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The bull case of investing in Brookfield Asset Management stock
Brookfield Asset Management is among the largest alternate asset managers in the world, with more than US$1 trillion in assets under management. It has a strong track record of delivering strong, risk-adjusted returns by investing in quality cash-generating assets, forming the backbone of the global economy.
Moreover, with nearly US$539 billion in fee-bearing capital, Brookfield Asset Management generates a steady stream of cash flows annually. In the third quarter (Q3) of 2024, Brookfield’s fee-bearing capital grew by 23% year over year, while fee-related earnings rose 14% to a record US$644 million. Its recent acquisitions of Castlelake and SVB Capital will add US$7 billion in fee-bearing capital and US$40 million in fee-related earnings for the company.
In the last 12 months, the company has raised US$135 billion in capital and sold US$17 billion in legacy assets, providing it the flexibility to invest in multiple growth projects.
Brookfield is positioned at the intersection of two mega-trends: artificial intelligence infrastructure and clean energy transition. It is building a US$30 billion semiconductor fabrication plant in partnership with Intel and recently inked a 10.5-gigawatt renewable power agreement with Microsoft, demonstrating an ability to win large-scale contracts with tech giants.
Its acquisition of Westinghouse in 2019 allows Brookfield to meet the rising demand for nuclear energy. Westinghouse serves around half of the global nuclear power plants and will be a key BAM revenue driver in the next two decades.
Notably, Brookfield Asset Management is building an insurance solutions business with US$90 billion under management. It aims to raise US$50 billion in external partner capital over the next five years, representing a massive growth opportunity.
Is BAM stock undervalued?
Analysts tracking Brookfield Asset Management expect its adjusted earnings per share to expand from US$1.37 in 2023 to US$2 in 2026. So, priced at 28 times forward earnings, BAM stock is not too expensive, given its growth estimates.
In the last 12 months, its distributable earnings stood at US$2.3 billion or US$1.41 per share, which indicates its dividend payout ratio is over 100%. Brookfield has deployed or committed to deploy roughly US$20 billion in Q3, which should drive future earnings higher and bring the dividend-payout ratio to more sustainable levels over time.
Given consensus price target estimates, Brookfield Asset Management stock trades at a premium of 10% in December 2024. However, its diversified businesses and a growing base of fee-generating earnings make it a top investment choice at current levels.
