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On Wednesday, CFRA analyst Hazim Bahari revised the price target for BHP Billiton (NYSE:BHP) shares, reducing it to $56 from the previous $62, while keeping a Hold rating on the stock. The $126 billion mining giant, currently trading near its 52-week low of $48.06, appears undervalued according to InvestingPro analysis. The adjustment follows BHP's operational report for the second quarter of fiscal year 2025, which did not meet the analyst's expectations. Despite strong copper sales, with an 8.5% year-over-over increase to 492.8 kilotonnes and a 1% rise in average realized price (ARP) to $3.73 per pound, the company's iron ore and steelmaking coal suffered significant ARP declines due to weak demand from China. InvestingPro data reveals BHP maintains a strong financial health score of GREAT (3.01/5), with robust cash flows and moderate debt levels. Subscribers can access 8 additional exclusive ProTips and comprehensive financial metrics.
The price target reduction reflects a valuation of BHP at 2.62 times the projected book value for fiscal year 2026 ending in June, marking a 9% discount to its five-year average price-to-book value ratio. BHP's copper production saw a significant 17% increase, reaching 511 kilotonnes, thanks to higher-grade copper and improved ore recovery rates at the Escondida mine. However, the positive copper performance was overshadowed by a 25% drop in ARP for iron ore and a 32% decline for steelmaking coal year-over-year.
BHP is also grappling with financial repercussions from the Samarco dam failure incident, with anticipated losses of approximately $1.45 billion in fiscal year 2025. This is part of a larger total settlement of $15.85 billion that will be spread over the course of 20 years. In light of these developments, CFRA has revised its earnings per share (EPS) forecasts for BHP, lowering them to $4.60 for fiscal year 2025 and $4.74 for fiscal year 2026, down from the previous estimates of $4.85 and $4.91 respectively.
Despite the setbacks, CFRA maintains a Hold rating on BHP Billiton's stock. The firm cites the absence of demand catalysts for BHP's key commodities in the coming year as a reason for the rating. However, the analyst also notes BHP's attractive dividend yield, which currently stands at 5.85% according to InvestingPro data. The company has maintained dividend payments for 45 consecutive years, demonstrating strong commitment to shareholder returns. Trading at a P/E ratio of 16.01, the stock offers both value and income potential for long-term investors.
In other recent news, BHP Group experienced robust financials and record production levels for the 2024 fiscal year, with a final dividend announced at $0.74 per share, amounting to $7.4 billion in dividends for the year. Simultaneously, BHP is nearing a settlement with Brazilian authorities over the 2015 Mariana dam collapse, expected to be around 100 billion reais ($17.87 billion). Bernstein SocGen Group upgraded BHP's stock rating from Market Perform to Outperform, recognizing the current dip in iron prices as a favorable opportunity for investors. Despite a temporary suspension of Western Australia Nickel operations, BHP is progressing with its Jansen potash project and a joint venture with Lundin Mining (OTC:LUNMF) for copper growth opportunities in Argentina.
Meanwhile, RBC anticipates an asymmetric upside for copper stocks amid current market conditions. The firm highlighted Freeport-McMoRan (NYSE:FCX) Inc., BHP Group, Anglo American (JO:AGLJ) PLC, and Rio Tinto (NYSE:RIO) Group, all receiving an Outperform rating. RBC's stance suggests a favorable view on the copper sector, especially for companies with substantial exposure to the metal. These are among the recent developments that are shaping the trajectory of these companies.
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