Should you buy BHP shares after recent weakness?

The mining giant's shares pulled back yesterday. Should you be taking advantage?

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BHP Group Ltd (ASX: BHP) shares came under pressure on Thursday.

The mining giant's shares fell 3% to end the day at $44.91.

This was driven by concerns over the company's decision to increase its takeover offer for Anglo American plc (LSE: AAL).

And while the offer has since been rejected, the two parties will continue discussions for another week. Investors may believe that BHP will return with an improved offer and are clearly not seeing value in its plan to acquire the copper miner.

In light of yesterday's weakness, BHP shares are now down almost 11% since the turn of the year. Does this leave the Big Australian trading at an attractive level for investors? Let's see what analysts at Goldman Sachs are saying about the miner.

Are BHP shares good value?

According to a recent note out of the investment bank, its analysts think that the mining giant's shares are good value at current levels.

The broker has a buy rating and $49.00 price target on them. This implies potential upside of 9.1% for investors over the next 12 months.

To put that into context, a $10,000 investment would grow to be worth approximately $10,910 if Goldman is on the money with its recommendation.

But the returns won't stop there. BHP is one of the more generous dividend payers on the Australian share market.

Goldman expects this to remain the case and is forecasting fully franked dividends per share of 142 US cents in FY 2024 and then 126 US cents in FY 2025.

Assuming that BHP pays out 134 US cents (A$2.03) over the next 12 months (final dividend of FY 2024 and interim dividend of FY 2025), this would mean a 4.5% dividend yield for investors.

This would boost the total return on offer with BHP shares to 13.6% and lead to $450 in dividends from a $10,000 investment.

Why are its shares a buy?

Commenting on its buy rating, the broker said:

Attractive valuation, but at a premium to RIO: BHP is currently trading at ~6.0x NTM EBITDA, (25-yr average EV/EBITDA of ~6-7x) vs. RIO on ~5.5x. BHP is trading at 0.9x NAV (A$49.2/sh), vs. RIO at ~0.9x NAV. That said, we believe this premium vs. peers can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers), high returning copper growth, and lower iron ore replacement & decarbonisation capex.

Optionality with +US$20bn copper pipeline and strong production growth over 24/25: we continue to believe that BHP's major opportunity is growing copper production in Chile at Escondida and Spence, and growing copper production and capturing synergies in South Australia between Olympic Dam and the previous OZL assets. We estimate BHP will grow Cu Eq production by ~2%/6% in FY24/25 (excluding the divestment of Blackwater and Daunia).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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