One of the best large cap performers in the resources space this year has been the South32 Ltd (ASX: S32) share price.
Since the start of the year, the mining giant's shares have risen a sizeable 52%.
This is almost five times greater than the return of the S&P/ASX 200 Index (ASX: XJO).
Could the South32 share price hit $4.50 by Christmas?
Given the impressive run that the South32 share price is on, investors may be wondering just how high it can climb.
Well, the good news is that one leading broker still sees plenty of upside ahead for the company's shares.
According to a note out of Goldman Sachs this week, its analysts have retained their conviction buy rating and $4.40 price target on its shares.
Based on the current South32 share price of $3.80, this implies potential upside of approximately 16% for investors.
But it gets even better. Goldman believes that South32's shares will provide investors with a fully franked 11% dividend yield in FY 2022. This brings the total potential return to 27%. Not bad considering its shares are already up 52% this year.
Based on the above, the team at Goldman Sachs appear to see scope for the South32 share price to be trading in or around the $4.50 mark by Christmas.
What did it say?
There are a few reasons why Goldman is bullish on the mining giant.
It explained: "1. Valuation: The stock is trading at c. 1x NAV (A$3.88/sh) excluding [the recently announced copper acquisition of] Sierra Gorda.
2. Strong FCF outlook: We forecast a FCF yield of c. 15% in FY22 & FY23 (over 20% at spot), driven mostly by exposure to base metals (aluminium & alumina c. 50% of FY22 EBITDA, zinc/nickel c. 20%).
"3. Increased capital returns: We assume the buyback continues to be extended (at US$250mn p.a) and S32 continues to pay out 70% of earnings (40% ordinary, 30% special dividend component). On our estimates, S32 is on a dividend yield of c. 11-12% in FY22 & FY23."
In addition, the broker notes that there's positive newsflow on the horizon that could be a catalyst to driving the South32 share price higher.
Goldman commented:: "We would see the commitment to the restart of the Alumar aluminium smelter as a positive (c. 6% upside to EBITDA), and highlight the potential for capex on the US$800mn Dendrobium next domain (DND) met coal project to be reduced (which we would view as a positive), S32 is currently selling a base metal royalty portfolio (no value in our model), and is due to release the PFS results from the Hermosa zinc/silver/lead project (GS NPV US$1.1bn) in Arizona in Nov/Dec."
