Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Brookfield Infrastructure Partners LP (NYSE:BIP, 30-year Financials) appears to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $52.98 per share and the market cap of $15.6 billion, Brookfield Infrastructure Partners LP stock gives every indication of being modestly undervalued. GF Value for Brookfield Infrastructure Partners LP is shown in the chart below.


Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued
Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued

Because Brookfield Infrastructure Partners LP is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 31.3% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Brookfield Infrastructure Partners LP has a cash-to-debt ratio of 0.05, which ranks worse than 81% of the companies in the industry of Utilities - Regulated. Based on this, GuruFocus ranks Brookfield Infrastructure Partners LP's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Brookfield Infrastructure Partners LP over the past years:

Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued
Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Brookfield Infrastructure Partners LP has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.9 billion and earnings of $0.34 a share. Its operating margin is 22.79%, which ranks better than 73% of the companies in the industry of Utilities - Regulated. Overall, the profitability of Brookfield Infrastructure Partners LP is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Brookfield Infrastructure Partners LP over the past years:

Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued
Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Brookfield Infrastructure Partners LP's 3-year average revenue growth rate is better than 95% of the companies in the industry of Utilities - Regulated. Brookfield Infrastructure Partners LP's 3-year average EBITDA growth rate is 24.4%, which ranks better than 87% of the companies in the industry of Utilities - Regulated.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Brookfield Infrastructure Partners LP's ROIC was 2.82, while its WACC came in at 4.46. The historical ROIC vs WACC comparison of Brookfield Infrastructure Partners LP is shown below:

Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued
Brookfield Infrastructure Partners LP Stock Appears To Be Modestly Undervalued

In short, The stock of Brookfield Infrastructure Partners LP (NYSE:BIP, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 87% of the companies in the industry of Utilities - Regulated. To learn more about Brookfield Infrastructure Partners LP stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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