Investors have successfully wrestled with market volatility and economic uncertainties in the last three years, given that equity markets are trading near record highs. However, several quality TSX stocks are trading at a depressed valuation and can potentially deliver outsized gains to shareholders over the next decade.
One such company is Brookfield Business Partners (TSX:BBU.UN), a private equity powerhouse specializing in acquisition. A subsidiary of Brookfield Corp, the private equity giant has quietly built an empire by acquiring and transforming undervalued companies across multiple sectors, including business services, construction, energy, and industrials.
With a proven track record of turning around distressed assets, let’s see why this TSX stock could be the best investment of the decade.
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Is the TSX stock a good investment right now?
Down 31% from all-time highs, Brookfield Business Partners is valued at a market cap of $7.1 billion. In the third quarter (Q3) of 2024, Brookfield Business Partners reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of US$844 million, boosted by credits from the U.S. Inflation Reduction Act.
While the industrial segment reported an adjusted EBITDA of US$500 million, the metric for Business Services and Infrastructure Services segments stood at US$228 million and US$146 million, respectively.
Over the years, Brookfield Business has invested roughly US$9 billion to acquire mission-critical companies that enjoy a competitive moat. Moreover, it has realized more than US$6 billion by selling 20 businesses, delivering a three times multiple on invested capital, and generating an internal rate of return of 30%.
The company’s strategic moves showcase its value-creation playbook. For example, Brookfield Business recently acquired Network International, a digital payment services provider processing over US$50 billion in annual payments that currently serves 150,000 merchants.
Brookfield has integrated the acquisition with its existing Magnati operation, creating a payment processing powerhouse in the Middle East. The combined entity has grown revenue and profits by 15% annually over the last two years.
From a liquidity perspective, BBU maintains a strong position with US$1.6 billion available at the corporate level, which provides the company with enough flexibility to target accretive acquisitions. Armed with a robust balance sheet and an ability to efficiently recycle capital, BBU stands apart from its peers.
What’s next for Brookfield Business Partners stock?
Interestingly, 50% of BBU’s portfolio was acquired in the last three years. It indicates that the company can explore significant untapped value as current assets are larger and of higher quality than previously sold businesses.
Currently, BBU stock pays shareholders an annual dividend of US$0.25 per share, indicating a forward yield of over 1%. In the last 12 months, Brookfield Business stock has returned 22.8% to shareholders after adjusting for dividend reinvestments.
Analysts tracking the TSX stock expect its funds from operation per share to touch US$6.28 in 2024. So, priced at less than four times FFO, BBU stock is cheap and provides significant upside potential.
Wall Street remains bullish on Brookfield Business Partners and expects the stock to gain around 40% over the next 12 months, given consensus price targets. As interest rates move lower and transaction activity picks up, BBU could be perfectly positioned to deliver exceptional shareholder value in the years ahead.
