BHP Group Ltd. (BHP) Stock Forecast

With a market capitalization of approximately $150 billion, BHP Group Ltd. is one of the largest mining corporations in the world. And since it is a publicly-traded company, it’s naturally a regular topic among traders.

BHP is a mining company headquartered in Melbourne, Victoria, Australia, with international operations. It was incorporated in Silverton, New South Wales back in 1885.

Fast forward to present times. As of Sept 30, 2022, BHP is the largest mining company in the world by market capitalization.

Naturally, there are many eyes on this stock and varying expectations regarding its potential. But not all analysts covering BHP can be right at the same time.

In this article, we will show you what Wall Street predicts for BHP and at the same time we will dive into some fundamentals regarding the Company. Everything from profitability trends to valuation will be helpful in judging how realistic analysts’ estimates are.

Let’s get into it…

Stock Forecast for 2023

According to 22 Wall Street analysts, the consensus price target for BHP in the next 12 months is $61.72. From its March 29, 2023 closing price of $60.79, this suggests a 1.53% upside. On the other hand, the highest price target is $75.81 and the lowest is $47.97, suggesting a 24.71% upside and -21.09% downside, respectively.

These are relatively conservative estimations for this stock. While Wall Street analysts have a lot of industry expertise and experience in covering publicly traded companies, some price targets make more sense than others. And we’ll see why in a moment.

First of all, it’s always useful to look at the long-term picture. BHP has a very long operating history and though it may be redundant to examine the business decades ago, the least we can do is look at some figures in the last 10 years in search of trends.

In regard to performance, the company has managed to preserve its high margins. Over the last five years, its average gross margin was 84.2% and its average operating margin was 41.6%.

As for growth, there’s no definite trend for revenue and earnings in the last 10 years. However, since 2020, revenue and net income have started increasing rapidly. Besides the revenue increase, another big factor for net income growth was the interest expenses that were reduced by almost half in 2021; in 2020 they were $910 million and in 2021 and 2022 were reported as $505 million and $497 million, respectively.

As a result, EPS were $1.5 in 2020, $2.24 in 2021, and $6.11 in 2022. And consequently operating cash flow increased as well in the last 3 years. It was reported at approximately $15.7 billion in 2020, $27.3 billion in 2021, and $32.2 billion in 2022.

As of market close on March 29, 2022, the price of BHP also increased by approximately 135% in the last 3 years. In contrast, SPY returned about 60.5% in the same period.

Speaking of price, we should also see if the stock is overvalued when compared to one of its closest competitors, Rio Tinto. BHP is currently trading at 8.07 times its TTM EPS and Rio Tinto at 8.43 times. In addition, BHP’s enterprise value is currently 4.87 times its TTM EBITDA, while Rio Tinto’s EV is at 5.1 times. Evidently, these two miners trade at similar levels relative to their operational results.

The pattern is broken when it comes to revenue and tangible assets. BHP’s P/S ratio is 2.42 and Rio Tinto’s is 1.87. And when it comes to their P/TB ratios, BHP’s is 3.57 and Rio Tinto’s is 2.28. In this case, BHP seems overvalued. However, we should take into account that Rio Tinto lags behind BHP when it comes to its gross margin which was last reported at 38.34%; BHP’s gross margin was last reported at more than double Rio Tinto’s; 85.10%.

So, overall, BHP doesn’t appear overvalued. But we certainly cannot claim it’s undervalued right now.

Of course, its margins are higher than the sector median margins as well. And its TTM dividend yield is relatively high at 9.11%. However, there are no long-term trends regarding its profitability and not a significant discount.

Moreover, despite its high yield, dividend payments have been erratic over the last 5 years and it remains to be seen if the yield on cost will be preserved.

Last, as far as solvency is concerned, BHP has a current ratio of 1.7 and an interest coverage ratio of 17.9, while its debt is 0.4 times its equity. Overall, this is a conservatively financed business with high liquidity.

Conclusion

In conclusion, BHP is definitely an interesting company to keep an eye on because of its increasing profitability. On top of high margins and conservative leverage, its price compares well with competitors like Rio Tinto.

However, as we showed above, it’s potentially not undervalued as there’s may be too much attention to make it anything other than efficiently valued. For this reason, the median price target appears reasonable.

With that being said, we hope that this article helped you to have a clearer understanding of where this stock is standing right now. Remember that there are too many variables that go into a forecast to cover them all in one post. Always do your own research and keep in mind that stocks can always pose some type of risk beyond the scope of any article.

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