What Led to the Steep Revision in Earnings Estimates for BHP Billiton?


Mar. 21 2017, Updated 9:06 a.m. ET

Factors affecting earnings estimates

Commodity producers’ earnings are sensitive to underlying commodity prices (USCI). Analysts’ recommendations and target prices are based on expected forward earnings.

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Revenue estimates

The chart above shows BHP Billiton’s (BHP) consensus revenue and EBITDA[1. earnings before interest, tax, depreciation, and amortization] estimates. According to data compiled from analysts’ estimates, these analysts expect BHP to deliver revenues of $40.8 billion for fiscal 2017,[2. fiscal year ended June 30, 2017] which is an implied gain of 32% YoY (year-over-year).

The estimate for the company’s EBITDA is $22.8 billion, implying an EBITDA margin of 55.8%, compared to 40% in fiscal 2016. BHP’s growth in revenues and margins could be due to expectations of higher commodity prices, especially for iron ore in 2017.

Analysts project growth of 1.8% and 10.3% in revenues for fiscal 2018 and fiscal 2019, respectively. Its EBITDA estimate shows a slight decline of 3.1% in fiscal 2018, which could recover with 12.3% growth in fiscal 2019.

Steep revision in estimates

BHP Billiton (BHP) has seen an upward revision of 32% in revenues and 83% in EBITDA in the past six months. This doesn’t come as a surprise given the backdrop of strong prices for commodities such as iron ore, coal, copper, and oil.

Miners Glencore International (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.


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