Brookfield Corporation (TSX: BN) stock set a new all-time high (ATH) Tuesday, briefly trading at $100.51 on the Toronto Stock Exchange (TSX). The high did not last long, as the stock plunged steeply after achieving its Tuesday high.
Despite its post-ATH sell-off, Brookfield stock still trades at a historically high price tag. This is particularly noteworthy since the company recently spun off 25% of its asset management business, Brookfield Asset Management (TSX: BAM). On a spinoff-adjusted basis, BN shares are up even more than it looks from the price.
In this article, I will tackle the question of whether Brookfield is still worth it after reaching an all-time high, ultimately concluding that the stock probably still has some life in it.
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What drove the gains
Brookfield’s recent gains were driven by many bullish factors that appear poised to drive good earnings results for years to come. These include:
- Brookfield Renewable Partners’ multi-billion dollar agreements to supply energy to U.S. tech companies, including Alphabet/Google and Microsoft.
- A recent second quarter earnings beat.
- Over $100 billion worth of un-deployed capital at Brookfield Asset Management.
- Continued growth in Brookfield’s insurance subsidiary, which some see as having the potential to be the next Berkshire Hathaway.
All of the factors above have got investors excited about Brookfield’s future distributable earnings (DE). Brookfield is certainly doing a lot of deals, which argues that future earnings will be higher than the last 12 months’ (LTM) earnings. So, the bullish expectations appear to be justified.
Turning to non-fundamental factors now, Brookfield has considerable “super investor” backing. It has been owned by Mohnish Pabrai and Chuck Akre, and recently received a major vote of confidence from Bill Ackman’s Pershing Square Holdings, which made the stock one of its top holdings.
Additionally, the company has high insider ownership, being a top holding of Bruce Flatt, Brian Lawson, and Nicholas Goodman. These non-fundamental factors aren’t as important as the company’s fundamentals, but they are signals that Brookfield has a good reputation. That reputation could influence Brookfield’s stock price in the future.
Recent earnings
In addition to the long-term fundamental factors listed above, Brookfield also benefitted from a strong recent earnings release. In the second quarter, Brookfield delivered $1.4 billion in distributable earnings (DE); $1.25 billion in DE before realizations; and $0.8 in DE before realizations per share, up 13%. The results broadly exceeded what analysts were expecting for the period, and the growth rate was considerable.
It is likely that Brookfield will continue growing its earnings going forward. The aforementioned Microsoft and Google deals will soon start generating revenue, and the company’s $177 billion worth of un-invested capital will eventually be invested and start producing fee-related income for Brookfield. In the meantime, the company’s current fee-bearing capital is pretty sticky and reliable. For these reasons, Brookfield’s earnings are almost certain to continue growing going forward – though I can’t say at what pace.
Foolish takeaway
Brookfield is one of Canada’s most respected companies for a reason. Profitable and growing, with plenty of big deals in the pipeline, it has a lot to offer investors. Over the years, BN stock has outperformed the TSX Composite Index by a considerable margin, and the company has the foundation in place to repeat the feat. Overall, I’m comfortable owning Brookfield stock.
