Brookfield (TSX:BN) stock has been one of the TSX Index‘s best performers over the last 12 months. In that period, it has appreciated by 46% in price, while the TSX index it is a part of has appreciated just 25%. So, Brookfield has been outperforming by a considerable margin.
Why has Brookfield been doing so well?
It mainly comes down to two factors:
Big deals and solid earnings results.
Since spinning off its asset management subsidiary, Brookfield has embarked on many M&A deals. The corporation itself has been selling its assets to its wholly owned insurance subsidiary, while Brookfield Renewable Partners has inked deals with some of America’s biggest tech giants.
In May 2024, Brookfield Renewable Partners announced that it would supply 10.5 gigawatts of clean power to Microsoft. Later, Brookfield repeated the feat, inking a deal to supply $3 billion worth of hydro power to Google over a period of several years. Not every asset manager on the planet can boast big deals with companies like Microsoft and Google. Naturally, these deals increased interest in Brookfield stock when they were announced.
Recent earnings
Another factor that has increased investor interest in Brookfield stock this year has been the company’s earnings performance. Each of Brookfield’s most recent earnings releases has shown considerable growth in distributable earnings (DE), a cash flow-based measure of dividend-paying ability. In its most recent quarter, Brookfield delivered:
- $0.80 in normalized DE per share, up 13% year over year.
- $0.88 in DE per share without adjustments for asset sales, down 34.8%.
- A 16% interest in fee-related earnings (FRE).
- $272 million in reported net income, up 532%.
- $177 worth of deployable capital, a record high for the company.
Overall, it was a solid showing. However, unlike the prior three quarterly releases, it was not a beat, so Brookfield stock declined in price after it came out. Nevertheless, the performance was pretty good in absolute terms.
Long-term performance
Brookfield’s long-term performance has also been pretty good. Over the last five years, it has compounded its revenue at 3.6%, its operating income at 15%, and its earnings per share (EPS) at 13.7% per year – a satisfactory showing on growth. Additionally, the company’s DE-based profit margin was 7.7% in the most recent quarter, indicating decent profitability.
Valuation
Last but not least, we can look at Brookfield’s valuation multiples to see how much investors are paying for all the growth and profitability described above.
At today’s price, Brookfield trades at about 14 times earnings (DE) and 2.3 times book value. These metrics indicate that the stock is valued more cheaply than most TSX stocks. However, the true price/book multiple may be considerably lower than what financial data platforms report. If you use the market value of Brookfield’s assets in place of their book value, then BN stock has a price-to-book ratio considerably lower than one, indicating serious undervaluation. So, there may be an opportunity here.
Foolish takeaway
Taking everything into account, Brookfield stock looks like a good value today. It’s profitable, it’s growing, and it has signed deals that will generate more growth in the future. I’m pretty happy to be holding Brookfield stock.
