BHP Group Ltd (ASX: BHP) shares were out of form on Wednesday. The mining giant's shares ended the day almost 1% lower at $42.70.
Investors were hitting the sell button following the release of its fourth quarter update. This was despite the Big Australian reporting record iron ore production and delivering impressive copper production.
With the company's shares now down 16% from their 52-week high, investors may be wondering if it is time to buy. So, let's see what analysts are saying.
What are analysts saying about BHP's update?
According to a note out of Goldman Sachs, its analysts were pleased with BHP's strong finish to the financial year. This was particularly the case with its copper operations, which is good news given the positive outlook for the base metal. It commented:
A strong finish to the year across all divisions. Copper production of 505kt exceeded expectations by 8%, delivering the strongest production result in 15 years. All assets performed well with realised pricing better than GSe on provisional pricing lower TC/RCs. Spence exceeded guidance as the recent concentrator upgrades translated to a notable uplift in recoveries that should improve further, and grades bounced back at Escondida that will remain at similar levels as group copper production is expected to increase ~4% in FY25 (1.85-2.05Mt, GSe 1.94Mt).
Pilbara [iron ore] shipments of 75.9Mt came in 2% ahead but realised pricing was marginally lower than GSe; FY25 guidance of 282-294Mt is as expected (GSe/VA 288Mt/291Mt) as efforts focus on rail tie-ins and port debottlenecking ahead of volumes creep target of 305Mtpa by FY28.
In light of the above, the broker believes that BHP is going to report a full year result largely in line with the market's expectations next month. It said:
We forecast FY24 U/L EBITDA of US$28.8bn (VA US$28.8bn – before Q) and U/L NPAT of US$13bn (VA US$13.3bn). We model 2H'24 U/L EPS of USc128/sh (US$6.5bn) and a final DPS of USc70/sh (55% payout, FY DPS of USc142/sh vs VA at USc149/sh). We expect net debt (BHP disclosed) at US$9.8bn (VA US$10.7bn).
Should you buy BHP shares?
In response to the update, Goldman Sachs has retained its buy rating and $48.40 price target on BHP's shares.
Based on its current share price, this implies potential upside of approximately 13.5% for investors over the next 12 months.
In addition, a dividend yield of ~4.7% is expected over the period, which stretches the total potential return to approximately 18%.
Goldman believes its premium valuation is justified. It commented:
BHP is currently trading at ~6.0x NTM EBITDA (25-yr average EV/EBITDA of 6.6x), a slight premium to RIO on ~5.5x; and at 0.9xNAV vs RIO at 0.8xNAV. Over the last 10 years, BHP has traded at a ~0.5x premium to global mining peers. We believe this premium 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).
