Last Update27 Aug 25Fair value Increased 3.61%
Consensus analyst reasoning reflects cautious optimism for BHP Group, as improved underlying fiscal results and modest upgrades to revenue forecasts are tempered by ongoing execution risks, cost inflation, and less compelling valuation following a share price rally—resulting in a moderate increase in the analyst price target from A$41.44 to A$42.94.
Analyst Commentary
- Bearish analysts pointed to execution risk related to significant cost overruns (“cost blow out”) at Jansen Stage 1, weighing on future outlook.
- Valuation perceived as less compelling after recent share price rally, with lower free cash flow yields and shares reaching revised target ranges.
- Normalized but still-elevated inflationary pressures and higher overall cost base compared to pre-pandemic levels contribute to cautious sentiment.
- Dividend surprise in FY25 seen as unlikely to be repeated, tempering expectations for extraordinary shareholder returns.
- Bullish analysts cite solid underlying fiscal results and certain price target increases, but with generally more measured optimism, reflecting both positive quarterly beats and offsetting execution and cost concerns.
What's in the News
- BHP is leading a consortium of steelmakers and industrial firms, including ArcelorMittal, Nippon Steel India, JSW Steel, Hyundai Steel, Chevron, and Mitsui, to explore carbon capture utilization and storage (CCUS) opportunities across China (Bloomberg).
- BHP and Vale have offered approximately $1.4 billion to settle a UK class action lawsuit tied to the Mariana dam disaster in Brazil, including $800 million in victim compensation and $600 million for legal fees, while the claimants' firm is seeking about $3 billion (Financial Times).
- Law firm Pogust Goodhead has filed a London lawsuit accusing BHP and Vale of attempting to avoid paying $1.7 billion in legal fees related to settlements over the 2015 Mariana dam collapse (Reuters).
- Former BHP Group Chair Ken MacKenzie is among the candidates being considered for the chairmanship of BP, alongside former Centrica CEO Sam Laidlaw (Sky News).
Valuation Changes
Summary of Valuation Changes for BHP Group
- The Consensus Analyst Price Target has risen slightly from A$41.44 to A$42.94.
- The Future P/E for BHP Group has significantly risen from 16.36x to 26.95x.
- The Consensus Revenue Growth forecasts for BHP Group has significantly risen from -2.7% per annum to -1.0% per annum.
Key Takeaways
- Operational excellence and cost discipline help BHP maintain strong margins, positively impacting earnings.
- Expansion into potash diversifies revenue sources, increasing earnings and stability.
- Economic uncertainties, labor market pressures, and financial obligations from the Samarco dam failure present significant risks to BHP's future cash flows and financial stability.
Catalysts
About BHP Group- Operates as a resources company in Australia, Europe, China, Japan, India, South Korea, the rest of Asia, North America, South America, and internationally.
- BHP's copper production is expected to grow by 24% over a three-year period, with significant investments in expanding operations such as the Laguna Seca concentrator and new projects in Argentina. This is likely to increase future revenue.
- The ongoing focus on operational excellence and cost discipline contributes to BHP maintaining industry-leading margins, which should positively impact net margins and earnings.
- BHP's entry into the potash market with the Jansen project diversifies its portfolio and positions it in a high-demand commodity with expected strong free cash flow, impacting revenue and earnings stability.
- Strategic joint ventures, such as the Vicuña project in Argentina, could enhance BHP's copper output, increasing revenue from this critical mineral in the future.
- The reconciliation agreement related to the Samarco dam failure provides greater certainty over cash flows and liability management, potentially improving future net earnings stability.
BHP Group Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming BHP Group's revenue will decrease by 1.0% annually over the next 3 years.
- Analysts assume that profit margins will increase from 17.6% today to 20.1% in 3 years time.
- Analysts expect earnings to reach $10.0 billion (and earnings per share of $1.89) by about August 2028, up from $9.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.1 billion in earnings, and the most bearish expecting $8.6 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from 15.7x today. This future PE is greater than the current PE for the US Metals and Mining industry at 13.9x.
- Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.
BHP Group Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The agreement related to the Samarco dam failure involves significant financial obligations for BHP Brazil, along with the potential for continuing liabilities, which may impact future cash flows and net margins.
- Sustained tightness in the labor market and slowly adjusting labor costs could continue to put upward pressure on operating expenses, affecting net margins adversely.
- The 11% decline in EBITDA attributed to external drivers, mainly due to a significant drop in prices for iron ore and steelmaking coal by over 20%, poses a risk to revenues if commodity prices remain volatile or decrease further.
- Despite progressing with growth projects, the potential for ongoing volatility and uncertainty in global economic conditions, especially regarding inflation and trade policies, could impact demand for commodities and thus, future revenues and earnings.
- The potential increase in net debt to around the top end of the target range by the end of the financial year introduces risk factors related to interest rates and financial flexibility, which could affect earnings and cash flows.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of A$42.939 for BHP Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$46.28, and the most bearish reporting a price target of just A$36.16.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $49.7 billion, earnings will come to $10.0 billion, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 7.3%.
- Given the current share price of A$43.22, the analyst price target of A$42.94 is 0.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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