Factors affecting earnings estimates
Commodity producers’ earnings are sensitive to underlying commodity prices (USCI). It’s worth noting that analysts’ recommendations and target prices are based on expected forward earnings.
The graph above shows BHP Billiton’s (BHP) consensus revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) estimates. According to data compiled from analysts’ estimates, they expect BHP to deliver revenue of $37.9 billion for 2017—a fall of 1% YoY (year-over-year).
The estimate for the company’s EBITDA is $18.5 billion, implying an EBITDA margin of 48.8%—same as in fiscal 2016.
Analysts project a growth of 1.5% and 6.5% in revenues for 2017 and 2018, respectively. The margins are also expected to rise, with EBITDA rising 1.7% and 11.5% in 2017 and 2018, respectively. The higher margin estimates for the next two years come mostly on the back of expectation of the recovery in commodities such as copper, coal, aluminum, and oil.
BHP has seen an upward revision of 6% in revenues and 21% in EBITDA in the past year, mainly due to better-than-expected commodity prices. Miners Glencore (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.