Brookfield Corp (TSX:BN) just released its earnings. The release beat analyst estimates, delivering $22.9 billion in revenue and $0.77 in distributable earnings per share (EPS), up 7% year over year. With a new earnings release comes a new opportunity to value a stock and decide whether it’s worth owning. In this article, I will explore whether Brookfield stock is worth owning following its first-quarter earnings release.
Earnings breakdown
Now that Brookfield has released its earnings, we can assess its performance in light of what was just revealed.
In the first quarter, Brookfield delivered good results. Highlights included:
- $22.9 billion in revenue, down 1.6%.
- $1 billion in distributable earnings before realizations, up 6%.
- $0.04 in diluted EPS, down 20%.
- $0.77 in distributable EPS, up 7%.
- $2.75 in wealth solutions earnings, up 88%.
As far as I can tell, earnings were ahead of what analysts expected. Scouring financial data platforms, I found a few with Brookfield estimates for the current quarter. They said that the average expectation was $0.70 – if the analysts were talking about distributable EPS, then Brookfield beat the estimate by 10%. Otherwise, it missed. Usually “adjusted earnings” is the earnings number that investors pay attention to, and DE is the closest thing to adjusted earnings that Brookfield reports. So, my feeling is that Brookfield delivered a beat.
A modest valuation
One way we could value Brookfield is by valuation multiples. These are the “stock ratios” you often hear about, such as the P/E ratio, price/book ratio, price/sales ratio, and more. At today’s prices, BN stock trades at:
- 73 times last year’s earnings.
- 13.5 times forward earnings.
- 0.7 times sales.
- 20.5 times distributable earnings (this ratio calculated by the author using Brookfield’s financial statements).
- 1.7 times book value.
Although the P/E ratio based on last year’s reported earnings is high, the forward P/E ratio (based on analyst estimates of next year’s earnings) is quite low. The multiple calculated using distributable earnings – an asset management industry measure of profit available to pay dividends – is relatively modest. The remainder of the ratios are low. So, Brookfield appears fairly cheap.
Respectable growth
Another thing Brookfield has going for it is respectable historical growth. Over the last three years, the company compounded its revenue, earnings, and free cash flow at the following rates:
- Revenue: 10.4%
- Earnings from continuing operations: 93%
- Free cash flow: 110%
These are compounded annual rates of growth (CAGR). So the total growth in the three-year period was even better than what the numbers above make it look like.
Another noteworthy recent development for Brookfield was its deal to supply Microsoft with 10.5 billion gigawatts of clean energy over a five-year period. This deal could generate as much as $1.4 billion in recurring revenue for Brookfield’s subsidiary, Brookfield Renewable. Sixty percent of those earnings would be passed onto Brookfield.
Foolish takeaway
Brookfield Corporation has a lot of things going for it right now. It’s growing, it is signing big deals, and it’s putting out good earnings. There are risks with any stock. In Brookfield’s case, the high level of debt is one worth keeping an eye on. On the whole, though, this company has many good things going for it.
