BHP Billiton Braves Iron-Ore Price Slump On Robust Yield

On May 22, we issued an updated research report on premium basic materials company — BHP Billiton (LON:BLT) Limited (NYSE:BHP) . The stock currently carries a Zacks Rank #3 (Hold), but flaunts a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let's dig a little deeper into the fundamental factors of the stock.

Gaining on Higher Productivity & Liquidity

Over the past five years, BHP Billiton has gathered productivity gains worth $12 billion. This upswing stemmed from improvements in capital and operating productivity. BHP Billiton intends to secure productivity gains of $2 billion by the end of fiscal 2019 (ending June 2019).

The company believes stronger productivity, lower mining and exploration expenses, and favorable commodity prices will continue to improve its liquidity, going forward. Notably, BHP Billiton intends to generate free cash flow of more than $12 billion in fiscal 2018.

BHP Billiton is also steadily lowering its debt with increased cash generation. Exiting the fiscal second quarter, the company’s net debt was $15.4 billion, lower than the $20.1 billion recorded at the end of first-half fiscal 2017 (ended Dec 31, 2016). Notably, it also plans to trim its net debt by $10-$15 billion, by the end of fiscal 2018.

The company also remains focused on providing increased returns to shareholders via healthy dividend payments. In first-half fiscal 2018, BHP Billiton paid an interim dividend of 55 cents to its shareholders, up 38% from the 40 cents per share paid in first-half fiscal 2017.

Over the past month, BHP Billiton’s shares yielded 7.5%, outperforming 6.5% growth recorded by the industry.

Per our estimates, the company year over year sales and earnings growth are fiscal 2018 are currently pegged at 44% and 34%, respectively.

What’s Hurting the Stock?

Lower iron-ore prices might hurt revenues and profitability of major mining giants like BHP Billiton, Vale S. A. (NYSE:VALE) , Rio Tinto (LON:RIO) plc (NYSE:RIO) and Kumba Iron Ore Limited (OTC:KIROY) . The benchmark price of this chief steel-making product has skidded 6.6% over the last four sessions, recoiling most of the gains secured in the past two months. The downtrend resulted from lower prices and higher inventories of steel in China.

Moreover, other industry-specific headwinds such as unfavorable government mining policies, occurrence of an accident in a plant, an oversupply situation in the market or stiff business rivalry remain causes of concern for the company.

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