Seeing outperformance in the near term as unlikely, Credit Suisse analyst Andrew Kuske cut Brookfield Asset Management Inc. to “neutral” from “outperform” on Wednesday.
“We believe limited conditions support the Brookfield Asset Management (BAM) absolute or relative outperformance versus a number of relevant groups,” he said.. As a result, we downgrade the stock.
“A few of the issues facing BAM’s near-term, include: (a) dynamics associated with BAM’s proposal to buy the portion of Brookfield Property Partners LP (BPY) not already owned; (b) considerations for early success of the forthcoming Brookfield Asset Management Reinsurance Partners on a near-term basis (albeit as a “paired” security); (c) the perceived impact (more relative basis) of rising interest rates versus other parts of the capital market. With this backdrop, we downgrade the stock.”
Despite the downgrade, Mr. Kuske sees the potential for a “strong” second half of 2021.
“At this time, we view the Brookfield Group’s overall activity levels as tilting towards the back half of the year from intertwined reality of deployments, fund raising and monetizations,” he said. “A successful BPY deal close is likely to result in active ‘repackaging’ of the assets to drive gains and capital efficiency. Such efforts are not embedded in our BAM expectations and could provide upside. In the context of history, recent increases in interest rates are largely inconsequential, however, they look to act as a relative headwind versus other capital market options. Given Brookfield’s real asset tilt versus other market options with a greater financial focus, the Group is less well positioned. Despite that reality, we continue to believe the available real assets yields will maintain momentum with shifting allocations away from traditional fixed income and into real asset classes.”
He raised his target to US$54 from US$52. The average on the Street is US$53.50.
Elsewhere, JP Morgan analyst Kenneth Worthington increased his target to US$57 from US$55 with an “overweight rating.