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Why this broker thinks the BHP (ASX:BHP) share price can storm higher

Looking for exposure to the resources sector? Check out what this broker thinks of BHP….
The post Why this broker thinks the BHP (ASX:BHP) share price can storm higher appeared first on The Motley Fool Australia. –

The BHP Group Ltd (ASX: BHP) share price continued its positive run on Wednesday.

The mining giant’s shares rose 1% to close the day at $48.57.

This latest gain means the BHP share price is now up 13% since the start of the year.

Can the BHP share price climb even higher?

The good news is that it may not be too late to invest according to analysts at Goldman Sachs.

This morning the broker retained its buy rating and $53.80 price target on the company’s shares. Based on the current BHP share price, this implies potential upside of ~11% over the next 12 months.

And if you include dividends (Goldman is forecasting US$2.52 per share in FY 2021 and US$2.58 per share in FY 2022), the potential total return stretches to approximately 18%.

Why is Goldman positive on BHP?

There are three key reasons that Goldman Sachs is bullish on the mining giant. The first is the strong free cash flow the company is currently generating thanks to favourable commodity prices.

It explained: “Strong earnings growth and FCF: We forecast a c. 50% increase in EBITDA and a doubling of FCF in FY21 (equating to c. 10-11% FCF yield), driven by our positive view on met coal, copper and oil prices.”

Another reason it feels the BHP share price is good value is the company’s growth prospects.

Goldman said: “Strong production growth: BHP’s group Cu Eq production should increase by 4-5% in FY22 and 6-7% in FY23, driven by a +250-270kt lift in copper volumes from Spence and Escondida, +10MMboe of oil volumes with new production from Mad Dog II/Atlantis Phase 3/Shenzi. BHP will likely also see a significant margin and FCF kicker in the Pilbara from the high grade South Flank deposit. Longer term, we see possible 50% volume growth to +150MMboe driven by Trion, Calypso (formerly T&T North), Shenzi North (formerly Wildling), and Scarborough.”

The final reason for the broker’s positive view is its ongoing portfolio optimisation, which it appears to believe will create value for shareholders.

It concluded: “Potential benefits from ongoing portfolio optimisation: Ongoing with the announcement to divest thermal and weak coking coal, and Bass Strait gas.”

Overall, this could make BHP worth considering if you’re looking for exposure to the resources sector.

The post Why this broker thinks the BHP (ASX:BHP) share price can storm higher appeared first on The Motley Fool Australia.

Should you invest $1,000 in BHP right now?

Before you consider BHP, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and BHP wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of May 24th 2021

More reading

ASX 200 up 0.5%: Telstra asset sale, AGL demerger, Nuix crashes again

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BHP (ASX:BHP) announces first deal in thermal coal selloff
ASX 200 Weekly Wrap: Share market breaks 5 week winning streak

5 things to watch on the ASX 200 on Friday

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 no position in any of the stocks mentioned. 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 Bruce Jackson.

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