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How Analysts View BHP Billiton after Its Strong Results

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Mar. 21 2017, Updated 7:36 a.m. ET

BHP’s ratings

Of the 21 analysts covering BHP Billiton (BHP), seven analysts issued “buy” recommendations, 11 gave “hold” recommendations, and three gave “sell” recommendations on the stock. The consensus target price for the company is 27.8 Australian dollars, which implies an upside of 16.4% based on its current market price.

In comparison, mining peers Freeport-McMoRan (FCX), Southern Copper (SCCO), and Teck Resources (TCK) have been assigned mostly “hold” ratings by Wall Street analysts. On January 6, 2017, J.P. Morgan (JPM) reiterated its “sell” rating on the stock.

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Upgrades and downgrades

Citigroup (C) upgraded BHP Billiton (BHP) stock from a “sell” to a “buy” rating on December 5, 2016. Citi isn’t very bullish about iron ore’s prospects, given the fundamental rebalancing needed. However, it has turned bullish in terms of its outlooks for other commodities.

Citigroup also upgraded its iron ore price forecast 21.6% for 2017 and 58.8% for hard coking coal. Citigroup is positive on the outlooks for oil, copper, and zinc in 2017. To reflect its positive stance, it has upgraded diversified miners such as BHP Billiton.

Following are the recent changes to BHP Billiton’s target prices:

  • On March 7, 2017, J.P. Morgan cut BHP’s target price from 1,300 pence to 1,265 pence. They currently have an “underweight” rating on the stock.
  • On February 22, 2017, UBS raised its target price from 1,350 pence to 1,400 pence while reiterating its “neutral” rating.
  • HSBC reaffirmed its “hold” rating for BHP while cutting its TP from 1,550 pence to 1,500 pence on February 22, 2017.

Analysts’ opinions

Alliance Bernstein’s Paul Gait is impressed with BHP Billiton’s cost-saving efforts, noting, “In addition to having delivered more revenue, the company has saved more costs than we anticipated, hence the higher differential in EBITDA vs. revenue. The company reported that its unit cost in H1 FY2017 dropped 10% YoY in conventional petroleum, 37% at Escondida, 1% at WAIO, and 4% at Queensland coal.”

Deutsche Bank (DB) analyst Tim Baker is overweight on Australian miners. He has a long-only portfolio with BHP, Rio Tinto (RIO), and South32 (SOUHY) representing these companies.

In the next part 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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