BHP: Earnings Outlook Will Balance Inflation Risks And China Demand Uncertainty

BHP Group’s analyst price target was recently lowered by £1.00 to £21.00 per share. Analysts cite softer assumptions for profit margin and revenue growth as factors contributing to their revised outlook.

Analyst Commentary

Analyst opinions on BHP Group reflect a mix of optimism and caution, with recent revisions to price targets and changes in ratings highlighting differing outlooks on the company’s valuation, growth prospects, and operational execution.

• Bullish analysts have raised BHP Group’s price target multiple times in recent months. This underscores confidence in the company’s ability to maintain attractive valuation levels amid shifting market conditions.
• The company's resilient profit margins and solid revenue performance, despite a challenging environment, have been noted positively in updated research coverage.
• Some see continued normalization of inflationary pressures across BHP's cost base and improved cost management as important drivers for sustained earnings potential.

• Bearish analysts have expressed caution, highlighting a recent downgrade to Neutral and a lowered price target. This signals concerns about limited upside for near-term share performance.
• Expectations for slower profit margin and revenue growth have played a role in more conservative outlooks, with some anticipating subdued financial results in the year ahead.
• Uncertainty around the sustainability of recent dividend surprises and lingering above-pre-pandemic cost levels have contributed to tempered views on BHP Group’s execution and risk profile.

What's in the News

• BHP sold several iron ore cargoes to Chinese traders this week despite an ongoing dispute with China's state buyer, with shipments sold at a discount to benchmark prices through private tender (Bloomberg).
• BHP is weighing the reopening of defunct mines in the historic U.S. copper belt, as recent U.S. policy shifts have spurred renewed exploration and review of options in Arizona (Financial Times).
• China's state iron ore buyer has temporarily banned all BHP iron ore cargoes amid a pricing dispute and paused new dollar-denominated seaborne purchases apart from select yuan-priced supplies (Bloomberg).
• BHP is leading a consortium of steelmakers to study carbon capture utilization and storage opportunities across China, partnering with several major industry players (Bloomberg).
• BHP and Vale have offered $1.4 billion to settle a UK class action related to the Mariana dam disaster in Brazil, including compensation for victims and legal fees, though negotiations continue regarding the total sum (Financial Times).

Valuation Changes

• The Fair Value Estimate has decreased slightly to £43.95 per share from £44.42 per share. This reflects a modest adjustment in long-term projections.
• The Discount Rate has risen marginally from 7.43 percent to 7.47 percent, which indicates a slightly higher perceived risk in future cash flow assessments.
• The Revenue Growth outlook has improved, with the projected decline narrowing to -0.11 percent from -0.38 percent previously.
• Net Profit Margin expectations have softened, moving down to 21.77 percent from 22.02 percent.
• The Future Price/Earnings (P/E) Ratio is now expected to be 16.32 times earnings, up slightly from the earlier estimate of 16.25 times.