Brookfield Infrastructure (BIPC +0.32%)(BIP +1.82%) has significantly underperformed the market this year. Shares of the global infrastructure operator have remained flat for most of the year, a period when the S&P 500 has risen by over 12%. This underperformance comes even though Brookfield is having another good year.
Next year is looking like an even better year for the company, as its already solid growth rate should reaccelerate. That drives my view that Brookfield Infrastructure will crush the market next year.
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A slower year
Brookfield Infrastructure is on track to generate $3.32 per share of funds from operations (FFO) this year. That's a more than 6% increase from last year's level. However, that's down from the company's target of delivering more than 10% annual FFO per share growth.
The company is benefiting from strong organic growth drivers. Catalysts include inflation-linked rate increases in its utility and transport segments, higher revenues in its midstream segment, and the commissioning of over $1.5 billion in new growth capital projects over the past year, including several new data centers. Additionally, the company has closed a couple of smaller tuck-in acquisitions that are contributing to its results.
NYSE: BIPC
Key Data Points
However, Brookfield is also facing some headwinds. It's battling foreign exchange fluctuations and the lost income from recently completed asset sales that are part of the company's capital recycling strategy. Those sales, which have totaled $2.8 billion this year, will give it the capital to invest in new assets that it expects will deliver higher returns over the long term.
The coming reacceleration
Brookfield believes it's at an inflection point in its growth outlook, which it expects will reaccelerate starting next year. Several catalysts drive that optimistic expectation.
The company believes that recent headwinds from foreign exchange fluctuations and interest rate fluctuations will start to normalize next year. As a result, these headwinds should turn into tailwinds, adding a few percentage points to its annual FFO per share in the coming years.
Another notable growth catalyst is the company's burgeoning growth capital backlog. In 2020, Brookfield Infrastructure had about $2 billion in organic expansion projects in its backlog. Today, that number stands at $8 billion. The bulk of the company's investment backlog consists of two semiconductor fabrication plants it's building with Intel, as well as a long list of global data center projects. The semiconductor fabrication plants should start contributing to its results over the next year, while the company is already benefiting from the growth of its global data center platform as new facilities come online.
Additionally, Brookfield should see a meaningful boost from its capital recycling strategy next year. It has already secured $2.1 billion of new growth investments this year, across four deals:
- Colonial Pipeline: The company is investing $500 million into the acquisition of this leading U.S. refined products pipeline system.
- Hotwire: Brookfield is investing $500 million into this U.S. bulk fiber network.
- Wells Fargo Rail: The company is investing $300 million into a partnership with GATX to buy a railcar operating lease portfolio.
- Korean Industrial Gas Business: It's buying a Korean industrial gas business.
Brookfield has already closed the first two deals and should wrap up the remaining two by the first quarter of next year. These new investments will provide the company with meaningful incremental cash flow supported by long-term contracts and government-regulated rate structures. They will also help drive future earnings growth from annual rate escalators, margin enhancement opportunities, and expansion projects.
Meanwhile, there's more growth ahead. Brookfield expects to continue recycling capital, targeting at least $3 billion in sales this year and an additional $3 billion over the next 12 to 18 months. That will provide it with meaningful additional capital to redeploy into new investment opportunities.
Additionally, Brookfield sees a significant opportunity to continue investing in organic expansion projects. Notably, it sees a massive $7 trillion investment opportunity for AI infrastructure, including $2 trillion of investment potential for building AI factories. Brookfield believes it could invest about $500 million annually into AI infrastructure in the coming years as it helps support the tremendous growth ahead for AI.
This multitude of growth catalysts -- including a robust organic project pipeline, expansion into AI infrastructure, new accretive acquisitions, and ongoing capital recycling -- drives Brookfield's expectation that its FFO per share growth rate will move toward its historical track record of 14% annually. This anticipated acceleration, significantly faster than the roughly 10% compound annual FFO growth of the past five years, positions Brookfield to potentially deliver dividend growth toward the top end of its 5% to 9% yearly target range.
The stage is set for a reacceleration in 2026
Brookfield Infrastructure's stock price has meandered along this year as growth headwinds have slowed its momentum. However, those headwinds should give way to much stronger tailwinds in 2026 and beyond. That drives my high conviction that Brookfield Infrastructure will crush the market next year.
