Here's What to Look for When Brookfield Asset Management Reports

Global alternative asset manager Brookfield Asset Management (BAM) , a successful enterprise in its niche sector, reports third-quarter earnings on Friday. 

What should investors look for, and should they buy shares?

The big question is whether earnings will push the company's stock up beyond the more than 12% gain already seen this year. The answer is that Brookfield Asset Management, which boasts about $250 billion in assets under management, looks like a growth stock winner.

With a rich 100-year history of owning and operating assets, Brookfield Asset Management specifically focuses on infrastucture, private equity, property and renewable power.

The company has been in the news recently for some of its holdings, including the initial public offering of methane producer Ember and bowing out of an auction for TerraForm Power shares, as well as the $5.2 billion deal to snap up a Petrobras' gas pipeline operation.

Let's look at the elements of the earnings report that demands scrutiny.

To put things into perspective, here are the three elements that demand investor scrutiny when earnings are released.

First, ignoring the depressed 8%-plus top-line growth in the third-quarter last year, Brookfield Asset Management over the past three quarters has posted double-digit sale increases year over year. Friday might reveal a change in script.

Analysts are projecting a 2% year-over-year drop in revenue to $4.8 billion. If results from Brookfield Renewable Energy, a listed subsidiary, is analyzed, the figures are largely business as usual.

Second, Brookfield Asset Management has reflected solid growth momentum on fee-bearing capital, which increased to $108 billion in the second quarter. Inflows should continue, particularly in real estate strategies.

Real estate and infrastructure will increasingly see growing interest with President-elect Donald Trump having secured a thumping victory. Recurring base management and incentive fees on predominantly long-dated or long-lasting capital normally accounts for a significant portion of Brookfield Asset Management's fee revenue.

Investors should look at the annualized run rate of total fees in the carry of the company, which topped the $2 billion mark in the second quarter. Strong capital flows could increase annual fee revenue, as will recent private fund commitments.

Finally, be it Brookfield Asset Management or peers such as Apollo Global Management, Carlyle or Oaktree Capital, funds raised usually take three to four years to deploy. But Brookfield Asset Management's large-scale capital gives it a major growth advantage over smaller peers such as Ares Management or Och-Ziff Capital Management.

Brookfield Asset Management can use these key capabilities to acquire high-quality assets for attractive returns. Investors will naturally want to know about the transactions struck by the company in the third quarter and its outlook for the fourth quarter.

In an environment where interest rates are zero and the S&P 500 is at about 2,200, Brookfield Asset Management has the ability to acquire assets in the off-market and boasts significant capital for deployment, solid operating capabilities and strong reputation.

The upshot: Brookfield Asset Management should see a healthy run. Despite its rally through the year, its shares are fairly valued.

Given the expected momentum in infrastructure and real estate, the company's earnings should be robust over the medium- and short terms. Analysts suggest that the stock should rise by another 17% to 18% in the next 12 months, which makes sense given its solid fundamentals.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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