Is it possible that the BHP Group Ltd (ASX: BHP) share price could reach $56 by the end of the year?
The brokers at Macquarie Group Ltd (ASX: MQG) have had their say on where they think that BHP shares are going.
A price target says where a broker believes a share price will be in 12 months from now. So, not necessarily where the shares may be in a couple of months by the end of 2021.
What is the price target for the BHP share price?
Macquarie currently has a price target of $56 on BHP. That suggests that BHP shares could rise by around 44% over the next 12 months, if they broker is right.
Whilst the iron price has been volatile, and has dropped, it is the high commodity prices of BHP’s other resources that are helping make up for the decline of iron.
In-particular, it is the strong coal price that is one of the factors in the broker’s mind about BHP.
Looking at the estimates for the next couple of years, Macquarie thinks BHP could pay a grossed-up dividend yield of 14.6% in FY22 and 10.6% in FY23.
The profit estimates put the BHP share price at 8x FY22’s projected earnings and 11x FY23’s estimated earnings.
In FY21, the business made most of its underlying earnings before interest and tax (EBIT) from iron ore. Of the total US$30.3 billion of underlying EBIT, iron ore contributed US$24.3 billion of it and copper contributed US$6.8 billion.
Major strategy moves
The company has made strategic moves that could affect the BHP share price over the next 12 months. For example, it’s planning to merge its petroleum business with Woodside Petroleum Limited (ASX: WPL).
The proposed merger would create a global top 10 energy company by production, with a global top 10 position in the LNG industry, and would be the largest energy company listed on the ASX.
BHP said that with the combination of two high-quality asset portfolios, the combined business will have a high margin oil portfolio, long life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition. There are estimated synergies of more than US$400 million from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration.
Another asset that could impact the BHP share price for a long time to come is the Jansen Stage 1 potash project, which BHP has approved to spend US$5.7 billion on capital expenditure in Canada.
BHP says that potash is a future facing commodity and Jansen is aligned with BHP’s strategy of growing its exposure to future facing commodities in “world class” assets that are large, low cost and expandable.
Management say that potash provides BHP with increased leverage to key global mega-trends including rising population, changing diets, decarbonisation and improving environmental stewardship.