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BHP’s Improved Operating Environment and Earnings

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Jan. 30 2017, Updated 9:06 a.m. ET

Improved operating environment

BHP Billiton’s (BHP) operating environment has significantly improved in the last year, mainly due to an increase and firming up of commodity prices between 2015 and 2016. As we’ve seen in the previous parts of this series, its production volumes, apart from those of copper, have also been quite strong. This combination of higher volumes and commodity prices should boost BHP’s earnings for the half-year ended December 2016. The results will be reported on February 21, 2017. In this concluding article, we’ll see what Wall Street analysts are expecting from BHP’s results for 1H17 and beyond.

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Revenue estimates

The graph above shows BHP’s 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 $39.5 billion for 2017—an increase of 28% YoY (year-over-year). The revenue for 1H17 of $19.3 billion implies a rise of 23% YoY.

Earnings estimates

The estimate for the company’s EBITDA for fiscal 2017 is $20.9 billion, implying an EBITDA margin of 53%. The margin for fiscal 2016 was significantly narrower, at 40%.

Analysts project a growth of 28% and -7% in revenue for 2017 and 2018, respectively. The margins are also expected to widen, with EBITDA rising 70% in 2017. The wider margin estimates for the next two years are mostly due to the expected recovery of commodities such as copper, coal, aluminum, and oil.

BHP has seen an upward revision of 6% in revenue 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) also saw their estimates rise steeply after January 2016.

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