On Friday, BMO Capital Markets increased its price target on Brookfield Business Partners L.P. (NYSE:BBU) shares from $32.00 to $34.00 while maintaining an Outperform rating. Currently trading at $22.11 with a market capitalization of $4.78 billion, BBU shows compelling valuation metrics according to InvestingPro data, including a P/E ratio of 7.94.
The adjustment follows the recent developments regarding Clarios, a business within Brookfield's portfolio. Despite the postponement of Clarios's initial public offering, as indicated by the withdrawal of its S-1 filing with the Securities and Exchange Commission (SEC), BMO's analysts have identified a silver lining in the form of a dividend recapitalization strategy.
This financial maneuver by Clarios is seen as a method to release significant capital back to Brookfield Business Partners. Although it wasn't the preferred route of monetization for BBU investors, it provides liquidity and retains the potential benefits from tax credits associated with Clarios.
The dividend recapitalization is particularly notable because it allows Brookfield Business Partners to recover some of the capital invested in Clarios without forfeiting the future financial advantages that could accrue from a 45x multiplier in tax credits.
BMO's analysts have highlighted that Brookfield Business Partners is currently trading at approximately half of its projected net asset value, which suggests that the stock's risk/reward profile is favorable. They emphasize that while the full potential upside may take time to materialize, the current valuation presents an attractive entry point for investors willing to exercise patience.
InvestingPro analysis reveals the company maintains a "GOOD" Financial Health Score of 2.76, with analyst targets ranging from $25 to $35, suggesting significant potential upside. The company has also maintained dividend payments for 9 consecutive years, demonstrating consistent shareholder returns.
The maintained Outperform rating by BMO Capital signifies the firm's confidence in Brookfield Business Partners' prospects. The analysts consider BBU as their preferred value idea, suggesting that they see a strong potential for growth and profitability in the company's future.
The market response to these insights and the revised price target will be closely watched by investors, as Brookfield Business Partners continues to navigate the complexities of its investment portfolio, including the strategic management of its stake in Clarios. For deeper insights into BBU's valuation and growth prospects, investors can access comprehensive analysis and additional ProTips through InvestingPro's detailed research reports, which provide expert analysis on over 1,400 US stocks.
In other recent news, Brookfield Business Partners reported a substantial increase in adjusted EBITDA to $844 million in Q3 2024, up from $655 million the previous year, according to the company's Third Quarter 2024 Results Conference Call. The firm's financial performance was bolstered by the Inflation Reduction Act, which enhanced domestic manufacturing in the U.S. Despite a dip in quarterly EBITDA due to the sale of Nuclear Technology Services, the company remains hopeful about future growth, backed by strategic acquisitions and high-quality business investments.
The completed acquisition of Network International, set to be integrated with Magnati, and the asset monetization resulting in over $350 million, including the sale of Altera's shuttle tanker operations, are among the recent developments. The company maintains a strong liquidity position, with $1.6 billion available, focusing on reducing borrowings and strategic acquisitions.
Brookfield Business Partners plans to persist with its strategy of investing in high-quality businesses and strategic acquisitions. The firm is also expecting several commercial wins and key contracts in the lottery segment to drive future growth. However, the company faced challenges in the lottery services due to delayed terminal deliveries and lower jackpot sizes.
Despite these hurdles, the company anticipates a favorable environment for transaction opportunities and a focus on businesses that can be improved strategically.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.