Is the BHP Billiton share price headed back above $30?

Credit : Will

The BHP Billiton Limited (ASX: BHP) share price could see a huge upswing if commodity prices improve as some analysts expect.

Currently trading at around $20.25, BHP’s share price has jumped more than 13% in the past week, thanks to steadying iron ore prices and a better outlook for the commodity.

Iron ore prices fell 2% overnight to US$59.36 a tonne but has been consistently above US$50 a tonne since late February. That comes on the back of a much-improved outlook for steel demand and supply – and also bodes well for the world’s largest iron ore miner Rio Tinto Limited (ASX: RIO).

Some analysts are forecasting average prices above US$60 a tonne in 2017 and above US$70 a tonne in 2018, partly driven by a falling US dollar if the US Federal Reserve is forced to stimulate the economy.

Iron ore generates around 34% of BHP’s total revenues and 144% of total group earnings before interest and tax (EBIT). That’s mainly because coal is generating huge losses for the miner currently.

BHP first half 2016 revenue pie chart

Source: Company reports


Petroleum also makes up a substantial portion of BHP’s revenues, 24% of total sales, but it too generated an earnings loss in the last half year. If oil prices can stabilise – which they appear to be – apart from some minor hiccups – that will also be good news for the giant miner.

What next for BHP?

BHP is due to report its full-year results next week, and analysts are forecasting a big fall in earnings per share (EPS) compared to the 2015 financial year (FY15). BHP reported US$1.21 in EPS in 2015 – which was down 52% from the prior year – but is expected to report just US$0.20 in EPS this financial year according to Reuters.

However, that is expected to more than double to US$0.46 in FY17.

Foolish takeaway

BHP’s share price is likely to remain under some pressure if earnings remain low. However, a recovery in commodity prices over the next few years could see the share price head back to $30.

Or perhaps BHP is a Sell? Here are 3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks. No credit card required.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.