Brookfield Infrastructure (BIP 0.02%) (BIPC 0.10%) operates a very recession-resistant business. That resiliency has been on full display this year as its earnings are on track to keep growing despite a severe recession.
However, what sets Brookfield Infrastructure apart is that it doesn't just survive recessions, it thrives in them. Here's why this infrastructure company prospers during periods when others struggle mightily.
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Durability during the storm
Brookfield Infrastructure's businesses proved their durability during the first half of 2020. Overall, its financial results declined by less than 5% even though we endured one of the deepest economic downturns on record. Three of Brookfield's four segments (utilities, energy, and data) grew their earnings during the period as the benefits from organic expansion and acquisitions offset foreign exchange headwinds in Brazil and shutdown-related impacts on some of its operations. Meanwhile, earnings in its more economically sensitive transportation segment held up relatively well despite the effects of government shutdowns on its toll road and port operations. Further, given its contract structure, it should recover some of the losses in that segment in future quarters.
Thanks to the durability of its utilities, energy, and data segments, and the expected second-half recovery in transportation as the headwinds from shutdowns fade, Brookfield estimates its full-year financial results will increase year over year. Driving that growth is a combination of organic expansion projects and recently completed acquisitions.
The flexibility to take advantage of opportunities that arise during recessions
Brookfield compliments its highly resilient cash flow with a top-tier balance sheet. The global infrastructure giant has a strong investment-grade credit rating, no significant debt maturities for the next five years, and $3.5 billion of liquidity (cash and borrowing capacity). It has lots of financial flexibility to take advantage of growth opportunities that typically emerge during recessions.
It has already done that this year as it recently secured an investment in a leading U.S. LNG export facility. Brookfield's parent, Brookfield Asset Management (BN 0.20%), is participating in a partnership to buy a 41% interest in Cheniere Energy Partners (CQP -0.33%) from private equity giant Blackstone Group (BX). Brookfield Infrastructure expects to invest $425 million into the $7 billion transaction, giving its an interest in the steady cash flows produced by Cheniere's LNG export facility. Brookfield was able to take advantage of the turbulence in the energy market to buy a stake in Cheniere at a discounted price.
Meanwhile, with significant remaining liquidity, the company is on the hunt for additional investment opportunities that could emerge because of this year's recession. It sees the energy midstream sector and transportation space as areas where future opportunities could arise because of energy price volatility in the former and negative sentiment in the latter. The company focuses on buying businesses for value -- which is easier to accomplish during a recession -- and then using its operational expertise to enhance them as market conditions improve. This approach has proven to be highly successful in past recessions as Brookfield has a long history of buying businesses during downturns and then cashing in on those investments when market conditions rebound.
A great stock to buy before, during, or after a recession
Brookfield Infrastructure built its business with recessions in mind. That's why it focuses on owning companies that produce durable cash flows in both good times and bad. It also maintains a top-notch financial profile. Those factors give it the flexibility to go on the offensive during recessions to acquire high-quality businesses at lower prices, which enable it to earn even higher returns as market conditions improve. It's an ideal stock to buy with a recession in mind.
