Investing.com -- Brookfield Asset Management (TSX:BAM) shares came under pressure Monday after S&P declined to assign the company a U.S. domicile, a move that some market participants had anticipated as a catalyst for broad index inclusion. Scotiabank (TSX:BNS) analyst Jean-Michel Gauthier framed the market reaction as a temporary dislocation, calling the pullback a tactical buying opportunity.
The stock finished yesterday 4.3% lower in Toronto trading, a retreat Gauthier believes was driven by “speculators [who] unwound some pre-positioning from the lack of a BAM US domicile assignment by S&P.” The analyst reiterated a positive stance, citing both the potential for index inclusion and strong forward fundamentals.
While S&P’s decision was viewed as a disappointment in the short term, Scotiabank expects BAM to benefit from upcoming index inflows elsewhere. Gauthier wrote that “BAM is still slated for a Russell inclusion on June 27 (+7.0M shares, 3.7x ADV)” and that the firm anticipates "it to be added to CRSP (rebalance from June 17 to 24, +13M shares, 2.4x ADV), which should provide strong tailwind.”
Scotiabank continues to back both BAM and its parent Brookfield Corp (TSX:BN), suggesting the recent weakness brings their valuations closer to historical averages. “BN trades at an above-avg. discount to historical P/NAV, while BAM is at a slight premium to average since our July 2023 initiation,” the report stated.
The firm believes S&P’s decision to delay re-domiciling BAM to the U.S. is not the end of the story and will likely be revisited. “We believe this only pushes back S&P’s decision,” the report said, adding that the index provider may have wanted to avoid conflicting changes across CRSP and Russell timelines.
Gauthier forecasts that 2025 could be a banner year for BAM, supported by a strong fundraising environment and potential earnings growth. The report estimates approximately 20% year-over-year growth in distributable earnings per share and sees room for external growth following BAM’s recent debt raise.