Brookfield leads as RBC initiates bullish call on diversified financials
Brookfield Corp (TSX:BN) is RBC's top pick, rated Outperform, which reflects confidence in its business model and upside tied to a valuation disconnect. RBC analyst Bart Dziarski noted: 'The current valuation disconnect is too extreme for what we view to be an industry-leading franchise in a sector benefiting from positive secular trends.'
RBC also sees material upside in Brookfield Asset Management (TSX:BAM) and Brookfield Business Partners (NYSE:BBU) LP (TSX:BBU_u), both rated Outperform. The former offers capital-light exposure to alternative asset management, while the latter is moving into a favorable monetization cycle, which could act as a near-term catalyst.
The firm is constructive on the P&C insurance space, citing its defensive profile and M&A optionality in a volatile macro environment. RBC is particularly optimistic about Definity Financial Corp (TSX:DFY) and Trisura Group Ltd (TSX:TSU), each rated Outperform, highlighting the former's 'transformational' Travelers (NYSE:TRV) acquisition and the latter's rebound potential now that regulatory penalties have run their course.
Fairfax Financial Holdings Ltd (TSX:FFH) is another key Outperform-rated pick, where the market has yet to fully price in underlying franchise value. According to Dziarski, 'Investors are still not recognizing solid franchise value,' signaling continued re-rating potential.
Among other diversified financials, RBC favors Element Fleet Management Corp (TSX:EFN) and Power Corporation Of Canada (TSX:POW), rating both Outperform on improving profitability and valuation upside. By contrast, the analyst initiated coverage on IGM Financial Inc . (TSX:IGM) with a Sector Perform due to concerns around the growth prospects for its core assets, IG Wealth Management and Mackenzie Investments.
Intact Financial Corporation (TSX:IFC) received a Sector Perform rating from RBC Capital Markets, reflecting a more measured view despite the firm's strong franchise characteristics. While RBC acknowledges Intact's solid positioning within the property and casualty insurance market, valuation concerns prevent a more bullish stance at current levels.
RBC applied a variety of valuation frameworks, including proprietary data analytics and return-based modeling, to challenge conventional consensus estimates. These findings support Street-high price targets for Brookfield Corporation, Element Fleet, and Fairfax Financial.
The broader thesis is built on differentiated research including deep dives into subsidiary holdings and M&A scenarios, with data science insights from RBC Elements enhancing the views. The bank concludes that a diversified approach across capital-light asset models, alternative managers, and insurance offers both resilience and growth in today's market.
RBC Capital Markets' initiation of coverage underscores a strategic preference for diversified financial firms that blend value, growth, and structural resilience. With high-conviction picks, the firm sees a compelling opportunity for investors to capitalize on dislocated valuations and favorable long-term trends.
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