In afternoon trade the BHP Group Ltd (ASX: BHP) share price is on course to end the week with a decline.
At the time of writing, the mining giant's shares are down 2% to $45.96.
Despite this decline, the BHP share price is up an impressive 34% over the last six months.
Is it too late to buy BHP shares?
While it is unlikely the BHP share price will be generating another 34% gain over the next six months, one leading broker still sees enough value in its shares to recommend it as a buy.
According to a note out of Goldman Sachs, the broker has retained its buy rating and put a price target of $47.90 on the company's shares.
This price target implies potential upside of 4.2% excluding dividends and 9.2% including them.
Why does Goldman rate BHP?
There are three key reasons why Goldman Sachs has held firm with its buy rating on the BHP share price.
It explained that one of these is its strong earnings and free cash flow.
"(1) Strong earnings growth and FCF: we forecast a c. 20% increase in EBITDA and c. 50% increase in FCF in FY21, equating to a c. 9% FCF yield, driven partly by a fall in capex to US$7bn as major minerals projects are completed, and lower unit costs, but mostly due to our positive view on met coal, copper and oil prices in CY 2021."
Goldman also likes BHP for its strong production growth potential. Particularly with copper and oil.
"(2) Strong production growth: BHP's group Cu Eq production should increase by 4-5% in FY22 and FY23, driven by a 250kt lift in copper volumes from Spence and Escondida, 4Mt of met coal with rebounding demand, and 10MMboe of oil volumes with new production from Mad Dog II and Atlantis Phase 3, and the recent 28% acquisition of Shenzi. BHP will likely also see a significant margin kicker in the Pilbara from the high grade South Flank deposit. Longer term, we have a positive view on BHP's organic growth options, particularly in oil where we see possible 50% volume growth to +150MMboe driven by Trion, T&T North and Scarborough."
And finally, another reason to be positive is its portfolio reshuffle.
"(3) Benefits from portfolio optimisation: ongoing with the announcement to divest thermal coal and Bass Strait gas."
All in all, the broker expects this to underpin strong earnings over the next three years.
As a result, it is forecasting dividend yields of approximately 5% per annum through to FY 2023. Which could be very attractive for income investors in this low interest rate environment.
