Why BHP Billiton Faced Multiple Downgrades from Analysts
BHP Billiton (BHP) has a majority of “buy” ratings, according to the consensus compiled by Thomson Reuters. Of the 19 analysts covering BHP Billiton, 53% gave it a “buy” rating, 32% recommended a “hold,” and 16% gave it a “sell” rating.
The consensus target price for the company is $27.56, which implies a potential downside of -0.6% based on its current market price. The potential growth for its peers (XME) Rio Tinto (RIO), Vale SA (VALE), and Freeport McMoran (FCX) is positive.
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Upgrades and downgrades
On September 1, 2017, Raymond James Financial downgraded BHP from a “market perform” rating to an “underperform” rating.
Exane BNP Paribas also downgraded BHP’s stock from a “neutral” rating to an “underperform” rating on September 7, 2017.
RBC’s downgrade of concerns of maturing assets
On August 31, 2017, RBC (Royal Bank of Canada) Capital Markets downgraded BHP from “sector-perform” to “underperform.” The rationale for the downgrade was mainly due to concerns surrounding the maturing asset base of BHP, which impacts its medium-term profitability.
London-based RBC analyst Tyler Broda stated, “We have analysed the relative return profiles for the London diversified miners. We expect the majority of BHP’s assets to generate less than 8% ROCE in the medium-term. BHP will also see a deterioration in its relative EBITDA/CuEquivalent tonne generated at spot prices (RIO screens particularly well).”
Broda believes that the inability of miners (XME) to find acceptable places to justify their free cash flow and management time are a concern. He believes this is particularly true of BHP, with $93 billion in capital employed.