3 Things to Watch When Brookfield Infrastructure Partners L.P. Reports Q3 Results

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Brookfield Infrastructure Partners (NYSE: BIP) has enjoyed quite a run in 2017, with units up more than 25% ahead of the company's third-quarter earnings report. Fueling that gain was a series of successful investments over the past year, which drove funds from operations (FFO) per unit up 12% so far this year.

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That momentum could continue if the company reports solid third-quarter results and an improving growth outlook on Friday morning. Here's a look at three things that would suggest even better days could be up ahead.

Watch for prior investments continuing to pay off

Last quarter, Brookfield Infrastructure Partners reported that FFO spiked 28.3% to $295 million, though it was only up 19.4% on a per-unit basis to $0.80 because the company has issued equity to pay for some of its growth initiatives. One of those was the acquisition of a stake in a natural gas pipeline transmission business in Brazil, which helped fuel a 68% increase in FFO from the company's utilities businesses. Brookfield has also benefited from recent expansion projects, which drove a 12% increase in FFO in the company's transportation segment. Together with recent acquisitions, the growth projects helped earnings in that division jump 31% last quarter. Those two positives helped offset a flat showing in the company's energy and communications infrastructure segments.

Given that Brookfield just recently added the natural gas transmission business and several transportation assets to its portfolio, third-quarter FFO should be meaningfully higher than it was in the year-ago period when the company reported $235 million, or $0.69 per unit, in FFO. That said, investors should be prepared for a much lower growth rate on a per-unit basis because the company completed a $1 billion equity offering during the quarter to finance some of its current growth initiatives.

See if its backlog ballooned

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Brookfield needed that cash because it currently has the largest organic project backlog in its history. As of the end of last quarter, the company had $2.4 billion of expansions underway. Usually, it self-finances growth with excess cash flow and sales of mature assets. However, not only is the current backlog significantly higher than usual, but the company has another $1.5 billion to $2 billion of projects that it's pursuing, which it could secure over the next year.

Ideally, we'd like to see that the company locked up some of those projects in the third quarter, as some certainty here would provide insight into near-term growth prospects, especially since these are high-return investment opportunities. For example, the company's natural gas pipeline joint venture with Kinder Morgan (NYSE: KMI) is currently pursuing $300 million of potential projects. Long-term, take-or-pay contracts would back those expansions, which means Brookfield and Kinder Morgan would collect steady cash flow even if customers didn't use their allotted capacity. For reference, Kinder Morgan has noted that the average pipeline project in its backlog typically generates about a 15% return. 

Keep an eye on the acquisition pipeline

The other driver of Brookfield's growth has been its ability to make needle-moving acquisitions. At the end of last quarter, the company had two deals in the pipeline: a $15 million Peruvian water system acquisition and a $200 million investment in a portfolio of communications towers in India. The tower deal is on shaky ground after the seller's merger with a rival fell through. Though, according to a report, the Indian telecom is now considering selling 100% of its towers instead of 51% of the combined portfolio.

In addition to those deals, Brookfield was also reportedly interested in another tower deal in India, which could give it a stake in the country's largest tower company. Along with pursuing telecom assets, Brookfield will be focusing on its longer-term goal of buying additional water businesses. Since acquisitions are a major growth driver for the company, any clarity on what else is coming down the acquisition pipeline would give investors a better picture of its growth potential.

Anticipating greater visibility

Brookfield Infrastructure Partners should report healthy FFO growth in the third quarter, fueled by recent acquisitions and expansion projects. So naturally, most of the focus will be on its ability to capture additional growth opportunities, with the hope that the company added several projects to its backlog and lined up more acquisitions. If that's the case, there's greater likelihood that Brookfield can grow shareholder distributions at or above the high end of its 5% to 9% annual target, which could give units the fuel needed to continue rising.

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Matthew DiLallo owns shares of Brookfield Infrastructure Partners and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.