On Thursday, RBC Capital Markets adjusted its price target for BHP Group (NYSE:BHP) Limited shares, listed on both the Australian Securities Exchange (ASX:BHP) and the New York Stock Exchange (NYSE: BHP), from AUD44.00 to AUD45.00, while maintaining a Sector Perform rating on the stock. This decision follows BHP's fourth-quarter production results, which exceeded expectations in all commodity segments.
The mining giant has consistently met operational targets, and for the first time, provided production guidance for the fiscal year 2025. Although the forecast for metallurgical coal was slightly below consensus estimates, the company anticipates approximately 4% growth in copper equivalent production over the next year, primarily driven by its copper segment.
The improved forecast has led to an upward revision of BHP's earnings estimates for the fiscal years 2024 and 2025 by 1-2%. This revision underpins the increase in the price target to AUD45.00, equivalent to 2300 pence per share. The Sector Perform rating remains unchanged, indicating that the stock is expected to perform in line with the sector.
The updated price target reflects a 2% increase from the previous target, suggesting a positive outlook for BHP's earnings potential. The company's ability to deliver on production, alongside the newly provided longer-term guidance, has contributed to the revised valuation by RBC Capital Markets.
In other recent news, BHP Group has reported strong production numbers for the June quarter, with Citi maintaining a Buy rating despite a slight reduction in the price target. BHP also reported that its capital expenditure for FY24 will be around $9.3 billion, lower than the initially guided figure.
However, EBITDA estimates for FY24 and FY25 have been revised downward due to slightly higher operating expenses and nickel costs. Additionally, BHP has scaled back its dividend payout ratio to 52%, resulting in an anticipated reduction in dividends for FY24 and FY25.
Barclays (LON:BARC) has revised its earnings projections for BHP, expecting a decrease in EBITDA for fiscal years 2025 and 2026 due to the suspension of its Nickel West project. BHP has committed approximately $300 million annually towards maintaining readiness for the potential resumption of operations.
BHP's attempt to acquire Anglo American (JO:AGLJ) has been thwarted, leading to a shift in internal growth strategies. Citi has resumed coverage on BHP, issuing a bullish rating and highlighting the company's potential for internal growth, including expanding its Chilean copper operations. These are some of the recent developments in the mining industry and the strategic responses of companies like BHP Group and Anglo American.
InvestingPro Insights
In light of RBC Capital Markets' updated price target and outlook on BHP Group Limited, real-time data and InvestingPro Tips can provide additional context for investors. BHP's market capitalization stands at a robust $145.71 billion, and the company boasts a Price/Earnings (P/E) ratio of 19.66, which adjusts to a more attractive 15.13 when considering the last twelve months as of Q2 2024. Despite a slight decline in revenue growth of -8.1% during the same period, BHP has demonstrated a strong gross profit margin of 78.46%.
Investors may also find comfort in BHP's dividend yield, which is currently at 5.0%, reflecting the company's commitment to returning value to shareholders—a commitment underscored by its track record of maintaining dividend payments for 45 consecutive years. Moreover, BHP operates with a moderate level of debt and is expected to remain profitable this year, as it has been over the last twelve months.
For those considering BHP as a potential addition to their portfolio, two InvestingPro Tips highlight the stock's appeal: BHP's valuation implies a strong free cash flow yield, and it pays a significant dividend to shareholders. These factors, combined with BHP's low price volatility and status as a prominent player in the Metals & Mining industry, may align well with certain investment strategies.
To explore further insights and tips on BHP, including 7 additional InvestingPro Tips not covered here, visit https://www.investing.com/pro/BHP. Take advantage of the exclusive offer by using the coupon code UK10 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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