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Broker sees 23% upside and a huge yield for BHP shares

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The BHP Group Ltd (ASX: BHP) share price has come under pressure this week following a pullback in the iron ore price.

This means the mining giant’s shares are now trading at their lowest levels in 2022.

Is the BHP share price a buying opportunity?

The team at Goldman Sachs are likely to see the pullback in the BHP share price as a buying opportunity.

Last week, the broker reiterated its buy rating with a $49.40 price target. This implies potential upside of 23% for investors over the next 12 months.

And sweetening the deal even further, the broker is forecasting a fully franked dividend yield of over 12% in FY 2022.

This stretches the total potential return on offer with the Big Australian’s shares to approximately 35% for investors.

What is Goldman saying?

Goldman Sachs has named three key reasons for its positive view on the BHP share price. This includes its current valuation relative to peers, its production growth pipeline, and its strong free cash flow generation.

Goldman explained:

1. Relative valuation: BHP to continue trading at a premium to global mining peers (~0.5x premium to global mining peers over 10-yrs) which we believe can be maintained

2. ~US$20bn copper pipeline to drive production growth and value: BHP’s major opportunity (and challenge) is offsetting copper reserve depletion and grade decline through investing in copper reserves/resources (largest globally).

3. Attractive FCF and capital returns outlook: BHP is trading on an attractive FCF/DPS yield of c. 11%/8% over the next 12-m. BHP’s minerals capex increasing to US$8-9bn by mid-decade (but below peer RIO at US$9-10bn).

All in all, this could make BHP shares a great option if you’re looking for exposure to the mining sector.

Source: Read More

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