Raymond James Raymond James analysts Frederic Bastien and David Quezada are “going all-in” on Brookfield Infrastructure Partners LP and Brookfield Renewable Partners LP raising their recommendations for their shares to “strong buy” from “outperform” following Brookfield’s Investor Day event last week.
“There were a number of topics discussed during last week’s sessions worthy of a published Industry Comment, as usual, but those are not behind our decision to upgrade both LPs,” they said. “After watching their unit prices drift lower with every interest rate increase, we believe it’s time to draw a line in the sand and be more assertive with our ratings. Brookfield Infrastructure and Brookfield Renewable can’t exactly be pitched for their prevailing yields, at 5.0 per cent and 5.3 per cent respectively, but they sure can for their above-average growth prospects. Both entities have been (and in our view will continue to be) growth compounders — the bedrock of any portfolio’s long-term performance.”
Seeing artificial intelligence “boosting operational excellence” and touting its “top-class operational playbook,” Mr. Bastien maintained a US$45 target for Brookfield Infrastructure, emphasizing its valuation screening “very well.” The average on the Street is US$42.33.
“Interest rate headwinds notwithstanding, we view the units’ valuation as unreasonably cheap,” he said. “They are trading at a forward P/FFO multiple of 9.8 times, which is well off the average of 12.5 times they have maintained over the past five years. The last few times Brookfield Infrastructure traded in the single-digit P/FFO range was at the height of COVID pessimism and during the late 2018 year-end tailspin that was fomented by fears of recession in the United States. Our target yield of roughly 3.75 per cent aligns with our belief the infrastructure giant’s diversified, stable and growing cash flows will support a valuation at the low end of the units’ historical trading range. Our $45 valuation also equates to 13.5 times our 2024 FFO forecast, a modest premium to BIP’s 5-year average.”