BHP Billiton (BHP) Down To Sell On Lingering Macro Risks

On Jun 12, Zacks Investment Research downgraded BHP Billiton (LON:BLT) Limited (NYSE:BHP) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies with a Zacks Rank #4 are likely to perform weaker than the broader market over the next few quarters.

Over the last one month, shares of this Zacks Rank #4 (Sell) stock lost 1.74%, as against 0.48% growth recorded by the Zacks categorized Mining - Miscellaneous industry.

Why the Downside?

Dismal iron-ore prices are predicted to hurt BHP Billiton’s near-term results. Over the last three months, iron-ore prices plunged nearly 37.4% to $53.6 per ton as of Jun 12. The downside has been stemmed by a supply glut in the market, and concerns related to weakening Chinese infrastructure and construction demand.

Moreover, the company depends on licenses and permits issued by the government. Changes in government policies might lead to situations where licenses are not renewed at all. Such circumstances adversely influence the company’s growth or productivity plans, thereby directly affecting its revenues and margins.

Additionally, environmental issues such as natural disasters, abnormal rainfall, shortage of skilled workers and destabilizing industrial infrastructure continue to threaten the company’s performance. For instance, high rainfall caused due to the Cyclone Debbie (Apr 2017) largely hampered power, logistics, access and services of the company’s coal mines located in Queensland’s Bowen Basin.

The mining industry is highly competitive, dominated by few major mining companies. The number of new entrants is almost limited due to huge start-up costs involved in such businesses. In order to maintain competency within the industry, BHP Billiton makes costly investments to maximize the output and minimize productivity expenses. However, these investments increase the company’s overall debt burden.

Over the last 30 days, the Zacks Consensus Estimate for the stock moved south for both fiscal 2017 and 2018, reflecting negative market sentiments.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

BASF SE (OTC:BASFY) generated an average positive earnings surprise of 3.02% over the trailing four quarters and currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company (NYSE:CC) has an average positive earnings surprise of 39.82% for the last four quarters and boasts a Zacks Rank #1, at present.

Carpenter Technology Corporation (NYSE:CRS) , which also sports a Zacks Rank #1, delivered an average positive earnings surprise of 14.30% over the past four quarters.

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