BHP Group (NYSE:BHP) is a diversified natural resources company.
It engages in the exploration, development, and production of oil and gas, and the mining of various metals and coal. I am bullish on the stock. (See BHP stock charts on TipRanks)
Value Drivers
BHP reported strong H2 results in August. The company released full-year highlights, with a 69% EBITDA increase, an 11% higher EBIT margin, a 139.7% increase in free cash flow, and a 66% reduction in net debt.
Looking forward, the company is expected to take advantage of further surges in copper and oil prices. It's also expected that BHP will reach full mining production capacity due to the expansion of its Spencer copper mine, which is expected to produce 300,000 metric tons per year.
Furthermore, sensible corporate restructuring is expected to attribute to operational efficiency. BHP is set to unify its two parent companies into one entity, in turn allowing for better governance and internal processes. Investors can also expect more prompt corporate events, with voting structures being less complex.
Lastly, the final and most short-term value driver is the global shortage in upstream supply. Rising prices will most likely facilitate strong upcoming quarters, which could result in another special dividend payout.
Shareholder Compensation
BHP has a dividend yield of 10.1% with an operating earnings yield (20.6%) exceeding its five-year average of 12%. If the company can sustain these ratios, along with its net income margin of 18.5%, investors could undoubtedly benefit from an even higher yield moving forward.
BHP also holds cash from operations of $27.2 billion on its balance sheet, leaving it with plenty of dry powder to reward shareholders in the form of share repurchases.
Wall Street's Take
Wall Street thinks BHP group is a Strong Buy, based on three unanimous Buy ratings. The average BHP price target of $42.30 implies 23.5% downside potential.
BHP can sustain its current levels of earnings due to commodity shortages. BHP should benefit dearly from oil & iron ore prices. Its reduction in debt and increase in free cash flow convey that shareholder value is increasing.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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