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BHP share price has ‘drifted into attractive value territory’ with 25% upside: broker

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The BHP Group Ltd (ASX: BHP) share price was a positive performer on Friday.

The mining giant’s shares ended the week with a gain of almost 2% to $38.81.

Can the BHP share price keep climbing?

The good news is that this gain could be the start of even greater gains according to analysts at Morgans.

According to a recent note, the broker has retained its add rating and lifted its price target to $48.50. Based on the current BHP share price, this implies potential upside of 25% for investors over the next 12 months.

But it gets better. Morgans expects BHP’s significant free cash flow generation to support some big dividends in the coming years.

It is forecasting fully franked dividends per share of US$2.84 in FY 2022 and US$2.57 in FY 2023. This represents yields of 10.5% and 9.6%, respectively, which brings the total potential 12-month return to approximately 35%.

What did the broker say?

While the broker acknowledges that the next few months carry some level of uncertainty, it remains positive on the outlook of the key commodities BHP produces.

The broker commented:

While the next 2-3 months hold uncertainty, particularly around the rate of growth in key commodity consumer China, we continue to see healthy fundamentals for iron ore, coal and base metals heading into 2023.

In light of this, Morgans feels that the BHP share price is attractively priced at the current level. It explained:

This in leaves BHP’s share price looking attractive at current levels. Supported by an FCF yield of 13%, dividend yield of ~10% fully franked, and trading at a ~30% [now 25%] discount to our target price, we see BHP’s share price as having drifted into attractive value territory. Maintain Add rating with a A$48.50 target price.

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