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Iron Ore Surge: How Are Analysts Rating the Miners?

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Part 5
Iron Ore Surge: How Are Analysts Rating the Miners? PART 5 OF 11

What Led to the Steep Revision in Earnings Estimates for BHP Billiton?

Factors affecting earnings estimates

Commodity producers’ earnings are sensitive to underlying commodity prices (USCI). Analysts’ recommendations and target prices are based on expected forward earnings.

What Led to the Steep Revision in Earnings Estimates for BHP Billiton?

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Revenue estimates

The chart above shows BHP Billiton’s (BHP) consensus revenue and EBITDA1 estimates. According to data compiled from analysts’ estimates, these analysts expect BHP to deliver revenues of $40.8 billion for fiscal 2017,2 which is an implied gain of 32% YoY (year-over-year).

The estimate for the company’s EBITDA is $22.8 billion, implying an EBITDA margin of 55.8%, compared to 40% in fiscal 2016. BHP’s growth in revenues and margins could be due to expectations of higher commodity prices, especially for iron ore in 2017.

Analysts project growth of 1.8% and 10.3% in revenues for fiscal 2018 and fiscal 2019, respectively. Its EBITDA estimate shows a slight decline of 3.1% in fiscal 2018, which could recover with 12.3% growth in fiscal 2019.

Steep revision in estimates

BHP Billiton (BHP) has seen an upward revision of 32% in revenues and 83% in EBITDA in the past six months. This doesn’t come as a surprise given the backdrop of strong prices for commodities such as iron ore, coal, copper, and oil.

Miners Glencore International (GLNCY), Southern Copper (SCCO), Teck Resources (TCK), and Freeport-McMoRan (FCX) have also seen their estimates rise after their valuation multiples fell steeply in January 2016.

  1. earnings before interest, tax, depreciation, and amortization
  2. fiscal year ended June 30, 2017
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