Brookfield Asset Management (BAM) PT Raised to $47 at Goldman Sachs

Goldman Sachs analyst Alexander Blostein raised the price target on Brookfield Asset Management (NYSE: BAM) to $47.00 (from $41.00) while maintaining a Buy rating.

The analyst comments "BAM hosted its annual Investor Day, which highlighted the firm's robust competitive position across a number of areas within Private Markets (Infra/Transition in particular and a building momentum in Credit), as well as its earnings potential and its progress against its major growth initiatives. The firm's targets include more than 2X fee-related earnings over the next 5 years, driven by a near-doubling of fee revenues (14% 5-yr CAGR) coupled with operating leverage - which together should deliver annual fee-related earnings of ~$5bn. Specifically, the firm's targets included (1) FRE more than 2X the current run-rate, with a 17% 5-year CAGR; (2) FPAUM of $1.1tr with a 16% 5-year CAGR (and against $514bn of FPAUM as of 2Q24), driven by Credit & Insurance as the main growth contributors, as well as the next leg of flagship funds, and expansion in complementary strategies, including a bigger push into the Wealth channel; (3) FRE margin expansion to >60% vs. the current TTM FRE margin of 55.7% (at BAM's share of OAK); (4) 2029 DE per share (after-tax) of $3.12, an 18% 5-year CAGR, which includes ~$850mn of net realized carry as this stream of cash flow starts to accrue in the next few years (currently not part of BAM's earnings streams). While ambitious, we think these 5-year targets seem achievable and generally in-line with our expectations for BAM's long-term earnings power as well as the firm's prior 5-year outlook from 2023 Investor Day. We also see some cushion if some of the building blocks here fall short of these targets, including (a) an incremental $250mn of FRE from the further consolidation of existing BAM partner managers (OAK, PrimaryWave, Castlelake, etc.) which would add ~5% to 2029E FRE - not in the firm's base case; and (b) inorganic opportunities. In addition, BAM is considering a few steps to further enhance shareholder value by (a) moving the firm's corporate domicile to the US and (b) converting BN's ownership of BAM into BAM Ltd shares, which we think could make BAM eventually eligible for a number of indices and therefore, meaningfully increasing the stock's public ownership; this has historically served as a big boost to Alt stock share prices. Taking a step back, BAM has faced muted growth over the last 12 months and the firm's path to a high-teen EPS CAGR is not necessarily linear. That said, we see a reasonable case for earnings momentum to pick up as (1) flagship funds hit run-rate, (2) BN ramps up further annuity production with wiggle room on rates to drive up volumes (fee-paying AUM to BAM), (3) BAM expands into complementary products, (4) outlook from lower rates likely boosts market-sensitive (public vehicles and liquid credit) portion of FPAUM and (5) FRE margins expand amid high-margin addition of AEL and incremental earnings from BN's insurance assets (both production and strategy rotation). We remain Buy-rated on the stock in the context of our broader Capital Markets coverage (raise 12-month PT to $47) with the additional technical tailwinds from potential index adds, but the stock's absolute upside is likely somewhat capped by the increasingly elevated valuation (26X 2025 P/E)."

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