Earnings wrap: where to now for BHP, FMG, and Rio Tinto share prices?
With Australia’s August earnings season now behind us, and iron ore prices looking volatile, where will BHP, FMG and Rio Tinto head next?
Iron ore price action at a glance
Over the last 12-months iron ore prices have surged to multi-year highs: rising from $76 per tonne in March, all the way up to around $120 per tonne in July.
This bullish price action was primarily driven by supply-side issues, as the Brazilian mining giant Vale saw its production halted following a catastrophic dam disaster.
Off the back of these supply problems and rising iron ore prices, Australia’s big miners BHP Billiton Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO) all saw their share prices rise during the year.
Mind you, as iron ore prices have pulled back in recent times, so have the share prices of Australia’s big three miners – as iron ore prices dropped as low as $80 per tonne in August.
Regardless, buoyed by rising commodity prices during 2018 and 2019; BHP, Rio Tinto and FMG all reported good results during last month’s earnings season – with FMG being a particular standout.
BHP share price: full-year results in focus
BHP Billiton Ltd reported its 2019 full-year earnings to the market last month, revealing a record final dividend of $3.8bn.
Even so, BHP reported earnings that missed analysts’ expectations – revealed underlying earnings of $9.12bn, significantly below the average analyst prediction of $10.02bn, according to Bloomberg Data.
In response to falling iron ore prices and since July, BHP (ASX: BHP) has seen its share price fall from A$42.04 to A$35.96 per share, a decline of approximately 13%.
At the same time, analysts look to have a mixed outlook on BHP – as volatility surrounding iron ore prices persist. On this front, the Wall Street Journal notes that the current consensus rating for the company is a hold.
FMG share price flat even after record FY19 profits
While BHP missed on earnings, Fortescue Metals Group Ltd (ASX: FMG) – bolstered by rising iron ore prices during 2019 – posted record earnings that came in above average analyst expectations.
On the top-line, the company saw FY19 revenue come it at $9.9bn. This was a significant increase on 2018’s revenue figures of $6.8bn.
Better still, FMG beat analyst (EBITDA) earnings estimates of $5.75bn – according to Bloomberg Data – posting FY19 earnings of $6.05bn, while maintaining its status as one of the lowest cost iron ore producers in the world.
In response to these strong results, analysts at Citibank raised their price target on FMG to A$8.00, while maintaining a neutral rating.
By comparison, analysts at UBS took a more bearish stance, hitting the iron ore giant with a neutral rating and a price target of just A$6.40. The investment bank expects FMG's capital expenditure to more than double in FY20.
Overall, and according to the Wall Street Journal Fortescue Metals Group Ltd (ASX: FMG) currently has a hold rating.
FMG, more exposed to the fluctuations in iron ore prices than the likes of BHP or Rio Tinto, has seen its share price drop from A$9.40 in July to A$8.01 per share today, a downward price movement of more than 16%.
Rio Tinto share price: Macquarie says ‘outperform’
Just as BHP and FMG have seen their share prices fall in response to declining iron ore prices, Rio Tinto Ltd (ASX: RIO) has faced a similar problem, with investors turning bearish.
Since July, the dual-listed miner has seen its share price decline from A$107 to around A$88 per share during today’s trading session, a fall of about 17%.
On a positive note and as we previously reported, Rio Tinto's ‘underlying first-half earnings were also strong: coming in at $4.93 billion, beating average analyst estimates of $4.86 billion, according to Bloomberg Data.’
Though impressive on the face of it, Rio Tinto saw net earnings dive 8%, after the company suffered a $800m write-down on its copper and gold Oyu Tolgoi project.
Mind you, while Rio Tinto has seen its share price decline in the last couple of months, some brokers, such as Macquarie Wealth Management continue to think the stock represents a compelling value proposition.
Here, Macquarie analysts have put a 12-month price target of A$114 per share and an outperform on the miner – citing strong iron ore price momentum as a key driver of earnings expansion. With today's share price of A$88, such a price target would represent potential upside of around 29%.
Like the other two iron ore miners discussed, and when looking at the Wall Street Journal’s consensus ratings, Rio Tinto’s shares command a hold rating.
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