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Why Citigroup Upgraded BHP Billiton to a ‘Buy’ Recently

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Consensus is a “hold”

Of the 19 analysts covering BHP Billiton (BHP), five analysts have “buy” recommendations, ten have “hold” recommendations, and four have “sell” recommendations on the stock. The consensus target price for the company is 24.6 Australian dollars, which implies a downside of 3.3% compared to its current market price.

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Citigroup upgrades BHP to a “buy”

Among other miners, Freeport-McMoRan (FCX), Southern Copper (SCCO), and Teck Resources (TCK) have been assigned mostly “hold” ratings by Wall Street analysts.

Citigroup (C) upgraded BHP’s stock from a “sell” to a “buy” rating on December 5, 2016. While Citi isn’t very bullish about the future prospects of iron ore given the fundamental rebalancing needed, it’s turned bullish in terms of its outlooks for other commodities. Citi has also upgraded its iron ore price forecast by 21.6% for 2017 and by 58.8% for hard coking coal. Citi is positive on the outlooks for oil, copper, and zinc in 2017. To reflect its positive stance, it’s upgraded diversified miners such as BHP.

JPMorgan Cazenove has retained its “underweight” rating on BHP’s stock. It has a price target of 11.1 British pounds on the stock.

Changing sentiments

Since the beginning of the year, the number of “buy” ratings for BHP has fallen 26%. BHP’s significant exposure to energy prices (USO) (UCO) through its Petroleum division may have caused some analysts to turn bearish on the stock. However, recently, OPEC’s (Organization of the Petroleum Exporting Countries) decision regarding production cuts boosted crude oil prices. The cut should be positive for crude oil’s outlook.

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

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