Key Takeaways
- Brookfield Corporation’s guidance for 20% annual growth in distributable earnings per share (DEPS) over five years is ambitious and hinges on successful capital recycling and continued fundraising momentum in its asset management arm.
- The path to a potential $146 share price relies on both achieving a ~$9.77 DEPS target and the market awarding it a price-to-earnings multiple of approximately 15x, which represents a premium to its current valuation.
- Significant headwinds persist, primarily in the commercial real estate portfolio, where higher interest rates and structural shifts create valuation uncertainty that contrasts with the robust performance in infrastructure and renewables.
- The company’s complex structure, while a source of strategic flexibility, may contribute to a valuation discount compared to simpler peers; unlocking this value is central to the investment thesis.
Brookfield Corporation has presented a notably confident forecast, guiding for annual growth of approximately 20% in distributable earnings per share (DEPS) over the next five years. This trajectory points towards a potential DEPS figure of around $9.77, a number which, if paired with a 15x price-to-earnings multiple, implies a theoretical share price of $146. While such projections are designed to signal strength, they invite a healthy dose of scrutiny, particularly when set against a backdrop of shifting interest rate paradigms and uneven performance across global asset classes.
Deconstructing the Growth Ambition
Achieving a five-year compound annual growth rate of 20% is no small feat for an entity of Brookfield’s scale and complexity. The forecast is not built on a single pillar, but rather on the interplay between its core operations: asset management, strategic capital recycling, and the direct performance of its owned assets. Understanding the mechanics of each is crucial to assessing the plausibility of the target.
The Asset Management Engine
A significant portion of Brookfield’s earnings growth is expected to come from its separately listed asset manager, Brookfield Asset Management (BAM), in which the corporation (BN) holds a 75% stake. The asset manager generates stable, high-margin fee-related earnings from its nearly $1 trillion in assets under management. Continued growth here depends on successful fundraising and performance fees. In its 2023 full-year results, Brookfield reported record fee-bearing capital of $457 billion, an 8% increase from the prior year, alongside record fee-related earnings of $2.3 billion.1 The ability to continuously attract institutional capital to its infrastructure, renewable, and credit funds is paramount, as these fees provide a resilient and growing income stream that is less capital-intensive than direct ownership.
Capital Recycling as a Core Competency
Brookfield’s long-term strategy involves acquiring assets, improving their operational and financial performance, and eventually selling them at a premium to recycle the capital into new opportunities. This process of monetisation is a key source of distributable earnings. In 2023, the company generated $3.6 billion of net proceeds from monetisations.1 The success of this model in the coming years will depend on a functioning transaction market. While higher interest rates have cooled M&A activity, Brookfield’s access to vast pools of private capital gives it an advantage, allowing it to act as a liquidity provider for distressed sellers and execute deals when traditional financing is scarce.
| Metric | Value | Year-over-Year Change |
|---|---|---|
| Distributable Earnings (DE) | $5.2 billion | +10% |
| DE per Share | $3.24 | +8% |
| Fee-Related Earnings | $2.3 billion | +6% |
| Fee-Bearing Capital | $457 billion | +8% |
Source: Brookfield Corporation 2023 Full Year Results.1
Valuation: The Multiple Question
The projection of a $146 share price is a two-part equation: hitting the earnings target and commanding the requisite valuation multiple. The ~$9.77 figure is a target for distributable earnings per share, a non-GAAP metric that Brookfield argues better reflects the cash-generating capacity of the business than traditional net income. This is a critical distinction, as DEPS adds back non-cash items like depreciation, which is significant in real asset businesses.
The second part of the equation, a 15x multiple on these earnings, is arguably the more speculative component. While not an outrageous figure for a premier alternative asset manager, it does represent an expansion from its current trading range. As of mid-2024, Brookfield Corporation has been trading at a forward price-to-earnings ratio closer to 12x or 13x. Reaching and sustaining a 15x multiple would require not only flawless execution on the growth plan but also a favourable shift in market sentiment towards complex, multi-asset platforms. Investors have historically applied a ‘conglomerate discount’ to Brookfield due to its perceived complexity, an issue the 2022 separation of the asset manager was intended to partly resolve.
Navigating a Divergent Market
Brookfield’s diversified portfolio is both a strength and a weakness. The secular tailwinds behind its infrastructure and renewable energy platforms are powerful. These sectors benefit from global decarbonisation trends and government investment in critical assets, providing stable, inflation-linked cash flows. However, the company’s substantial real estate holdings, particularly in commercial office space, face considerable headwinds from hybrid work trends and higher financing costs. While management remains optimistic about the long-term value of its “trophy” assets, the market remains sceptical. Any significant writedowns or challenges in refinancing real estate debt could act as a drag on sentiment and overall earnings, offsetting gains elsewhere.
A Plausible Path Fraught with Hurdles
Brookfield’s management team is widely respected for its capital allocation prowess and long-term perspective. The 20% growth target, while ambitious, is not entirely without precedent given the company’s track record. The combination of a growing, fee-generating asset manager and a disciplined capital recycling programme provides a credible pathway to significant earnings growth.
However, the journey to a $146 share price is far from guaranteed. It requires near-perfect execution, a cooperative macroeconomic environment, and a willingness from the market to shed its historical scepticism and award the company a higher valuation multiple. The primary risk lies not in the underlying quality of the assets, but in the timing and valuation of monetisations, particularly within the challenged real estate sector.
As a final thought, perhaps the most undervalued component of the Brookfield thesis is its strategic positioning in the credit space. As traditional lenders retreat, Brookfield’s credit arm is uniquely placed to provide bespoke financing solutions to sound companies facing liquidity challenges. The speculative hypothesis is that the market is underestimating the scale of earnings this counter-cyclical credit strategy could generate over the next 24-36 months, providing a powerful, if overlooked, contribution towards its ambitious five-year goal.
References
1. Brookfield Corporation. (2024, February 8). Brookfield Corporation Reports Strong 2023 Results. Retrieved from https://bn.brookfield.com/press-releases/brookfield-corporation-reports-strong-2023-results
