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What Jefferies Saw in BHP Billiton That Prompted an Upgrade

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Most analysts recommend a ‘hold’

Currently, eight analysts have a “buy” recommendation, nine have a “hold” recommendation, and two have a “sell” recommendation for BHP Billiton (BHP). The consensus target price is 20.8 Australian dollars, which implies an upside of 2% compared to the current market price.

Morgans Financial Limited is the most bullish on BHP stock with an “add” rating and a target price of $26. Evans and Partners, on the other hand, has the lowest target price of $16.

Among the other miners, Freeport-McMoRan (FCX), Southern Copper (SCCO), and Teck Resources (TCK) have a majority of “hold” ratings from Wall Street analysts.

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Jefferies upgrades BHP

On August 23, 2016, Jefferies upgraded BHP Billiton from “hold” to “buy” and increased its target price from $28 to $33. Jefferies maintained that mining fundamentals are improving as demand is stabilizing amid declining supply. It also noted that a strong balance sheet with good free cash flow potential should support the stock. The analyst added, “BHP is a low cost producer with low geopolitical and operational risk and a relatively strong balance sheet. BHP is well positioned relative to most other miners.”

Changing sentiments

Since the beginning of the year, the number of “buy” ratings for BHP has decreased by 20%. Compared to other diversified miners, BHP’s significant exposure to energy prices (USO) (UCO) through its Petroleum division might have caused some analysts to turn bearish on the stock.

In the next part of this series, we’ll look at consensus earnings estimates for BHP and explore whether there’s a possibility of a revision in these estimates.

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