Brookfield Asset Management 2

On my other blog I am today writing about the presentation at the World Money Show in Toronto by Donald Dony.

I do not own this stock of Brookfield Asset Management (TSX-BAM, NYSE-BAM). I used to own an earlier version of this stock as Hees International, then Edper Group and then EdperBrascan back in 1987 to 1999.

When I look at insider trading, I find just insider selling. Over the past year insider selling totaled $36.7M. This may sound like a lot, but is it just 0.14% of market cap. There is insider ownership with the CEO having shares worth around $712.7M, the CFO having shares worth around $232.1M and a 10% holder with shares worth around $367.2M. The above insiders only hold some 4.4% of the outstanding shares in this company that is worth some $33.9B.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.80, 11.78 and 14.29. The corresponding 10 year P/E Ratios are higher at 11.14, 14.38 and 17.75. The current P/E Ratio is 22.32 based on a stock price of $55.07 and 2014 EPS estimate of $2.18 US$ or $2.47 CDN$. This stock price test suggests that the stock is expensive.

Another problem is that analysts seem to feel that EPS will drop substantially in 2015 to around $1.59 US$ or $1.80 CDN$. This would raise the P/E Ratio even further to 30.60. By P/E testing, this stock is expensive.

I get a Graham Price of $43.53. The 10 year low, median and high median P/GP Ratios are 0.83, 1.06 and 1.31. The current P/GP Ratio is 1.27. This puts the stock price in the reasonable range. However, I get a P/GP Ratio of 1.48 for 2015 and this puts the stock in the expensive range.

I get a 10 year Price/Book Value per Share Ratio of 2.02 and the current P/B Ratio is 1.61 based on a stock price of $55.07 and BVPS of $34.13. The current P/B Ratio is 20% lower than the 10 year median P/B Ratio. The value in this test is that no estimate values are used. This stock price test suggests that the current stock price is reasonable.

The 5 year median dividend yield is 1.77%, the historical average dividend yield is 3.90% and the historical median dividend yield is 2.88%. These are all substantially higher than the current dividend yield from 25% to 66% higher. This stock price testing suggests that the stock price is expensive.

Over the longer term, capital gains tend to equal dividend increases. Over the past 10 years, in US$, dividends are up by 10.56% per year but capital gains are up by 15.64% per year. This does suggest that the stock price is current expensive.

The Motley Fool says this company is a buy and is bullet proof. The Motley Fool seems to like to stock a lot with another buy on it giving two reasons why Brookfield Asset Management is recession proof.

I had always thought that Motley Fool offered sound advice. I have read some of their reports and they seemed very reasonable. However, when I was at the Money Show I talked to a lady who subscribes to their newsletter. She said that she was currently disappointed with their advice because all the stocks she bought on their advice have lost money. That was certainly interesting.

When I look at analysts' recommendations, I find Buy and Holder recommendations. The 12 month consensus stock price is $44.60. This implies a capital loss of 19%. You can anomalies like this when a stock is climbing fast and analysts' reports do not keep up. Also, there are not that many analysts following this stock as there are only 5.

However, I do wonder about the analysts' estimates. If you look at EPS over the past 12 months to the end of June 2014 compared to the 12 months to the end of 2013, EPS is up some 37%. Analysts expect earnings year over year to the end of 2014 to be down by 30%. Estimates expect Revenues to be down by 6.65, but they are only down by 4.4%. Cash Flow is expected to be down by 50%, but it is up by 5.5%.

If you use EPS over the past 12 months to the end of June 2014, the P/E Ratio is just 11.37. This would put the stock price testing of E/P Ratio into the reasonable range. When stock price testing is uncertain, I like the P/B Ratio and the dividend yield tests. This is because these tests use no estimates. However, the P/B Ratio test says the stock is cheap and the dividend yield tests say the stock is expensive. If I have to choose one test, I tend to go with the dividend yield tests.

Also, as I mentioned yesterday, this company has a lot of cash on hand. It is equal to $7.19 per share or some 13% of the current stock price.

Sound bit for Twitter and StockTwits is: Maybe expensive, maybe not. This stock has been rising since 2009 so the stock price has probably gotten ahead of the stocks fundamentals. However, as I have said above, I do wonder about the analysts' estimates. See my spreadsheet at bam.htm.

This is the second of two parts. The first part was posted on Thursday, November 06, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

This Canadian Asset Managing company invests in and operates a variety of assets on its own behalf as well as co-investors. It is focused on property, power and infrastructure assets. It operates in Canada, US and internationally. Its web site is here Brookfield Asset Management.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.