Why are BHP shares still falling?
Australian mining heavyweight BHP may see its shares recover by close to 29% in the year ahead, based on analysts’ price targets.
- BHP Group (ASX: BHP) share price drops to A$36.41 on Monday
- Its shares have seen four straight sessions of losses
- In the near term, BHP may continue to face headwinds
- Keen to take advantage of BHP’s falling share price? Open an account with us to short the stock now.
What’s weighing on the BHP stock price?
Inflation worries as well as softer iron ore prices dragged Australian mining majors’ stock prices lower on Monday.
BHP lost 0.5% day-on-day to close at A$36.41, extending the share price’s losses to a fourth consecutive session.
Research teams were largely bullish on the Australia-listed BHP counter. As of Sunday night, nine analysts rated it a ‘buy’, four recommended ‘hold’, and none gave ‘sell’ calls, Bloomberg data showed.
Their average 12-month price target stood at A$46.92 per share, which implied a potential upside of nearly 29% based on Monday’s close.
Last week, Macquarie and Bernstein each maintained their ‘outperform’ ratings on BHP, but lowered their target prices slightly to A$54 and A$41, respectively, from A$56 and A$45 previously.
Jefferies analysts cut their ratings for BHP and its rival Rio Tinto Group to ‘hold’, from ‘buy’ previously, citing ‘near-term downside risk to iron ore and to consensus forecasts, declining capital returns, accelerating cost pressures, and increased operating risk’.
BHP could see portfolio catalysts, says Bloomberg
The Bloomberg Intelligence (BI) research team wrote last Friday that BHP has relatively lower exposure to iron ore and more leverage to copper, versus Rio Tinto and Vale. That puts the mining giant in a better position in the coming years, compared to the two peers, BI added.
From an absolute standpoint, ‘higher-than expected capital returns, less scope for estimate reductions, and portfolio catalysts may be key drivers’ for BHP, the analysts noted.
Furthermore, BHP’s pending divestiture of its petroleum division, though incomplete, might be underappreciated, they said.
‘Other catalysts could include a de-merger of its thermal coal (New South Wales, Colombia) and lower-quality met coal (BHP-Mitsui joint venture) assets,’ BI opined.
Read more: Beginner’s guide to day trading
Deutsche Bank foresees near-term headwind persisting
While value has emerged in BHP shares after the stock’s recent pullback, Deutsche Bank expects weak steel production trends in China to remain a headwind to iron ore prices in the near term.
Meanwhile, Deutsche Bank’s research team also described BHP’s exit from petroleum as ‘a good strategic step’. However, the analysts see limited valuation uplift from the disposal, which could leave BHP short on growth options and increase the likelihood of copper and nickel acquisitions.
Regarding the group’s 1Q FY2022 production report, Barclays analysts said the group ‘got off to a mixed start’ to its fiscal year, ‘with decent performance in petroleum and Western Australian iron ore offset by a weaker quarter in copper and metallurgical coal’.
Barclays expects a limited impact on BHP’s forward estimates. The production report, released late last month for the quarter ended September 2021, had shown a lower quarterly output and flagged a manpower shortage.
Feeling bearish about BHP shares?
Take your position on BHP and over 13,000 Australian and international shares via CFDs or share trading – and trade it all seamlessly from one platform.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.