BHP Group BHP is poised well on solid cash generation, efforts to lower debt, investment in growth projects and higher operational efficacy aided by adoption of technology.
At present, BHP Group carries a Zacks Rank #3 (Hold). It has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors. You can see the complete list of today's Zacks #1 Rank stocks here.
The stock has long-term expected earnings per share growth rate of 4.1%. In the past year, the stock has fallen 11.4% compared with the industry’s decline of 1.5%.
Let’s delve deeper into the factors that substantiate the company’s Zacks Rank #3.
Upbeat Production Results: In the nine-month period ended Mar 31, 2020, the company’s total iron-ore production improved 3% to 181 Mt compared with the prior-year period.
2020 Guidance Maintained: While other miners have lowered their production guidance for fiscal 2020 amid the restrictions posed by the respective governments to facilitate the spread of the coronavirus, BHP Group has maintained the same for fiscal 2020. In fiscal 2020, BHP Group expects to produce between 242 and 253 Mt of iron ore. BHP Group's fiscal 2020 guidance for copper production is 1,705-1,820 kt, up from the 1,689 kt produced in fiscal 2019. Metallurgical coal production guidance for fiscal 2020 is 41-45 Mt compared with the 42 Mt produced in fiscal 2019.
Strong Balance Sheet: During the 2016-2019 timeframe, BHP Group’s long-term debt level has gone down at a CAGR of 10%. Its cash position has improved at a CAGR of 15% over the same period. Its total debt to total capital ratio is currently at 0.32, lower than the industry’s 0.44.
Further, the company has a current ratio of 1.89, higher than the industry’s 1.55, which indicates the company’s ability to meet its short-term debt obligations. Backed by strong cash flow, and low debt levels and cost operations, BHP is poised well to navigate through these troubled times.
Other Growth Drivers: BHP Group is making operations more efficient on smarter technology adoption across the entire value chain. The company maintains capital and exploration expenditure guidance below $8 billion per annum for fiscal 2020 and $8 billion for fiscal 2021. BHP Group currently has six major projects under development in petroleum, copper, iron ore and potash, with a combined budget of $11.4 billion over the life of the projects.
BHP Group recently increased its stake in SolGold from 11.1% to 14.7%. SolGold is primarily focused on finding copper and gold deposits, and is the largest and most active concession holder in Ecuador. Notably, the country is considered a highly prospective yet under-explored section of the Andean Copper Belt, which is home to multiple Tier 1 copper and gold projects.
However, the slowdown in global growth and lower commodity prices due to the coronavirus outbreak is likely to impact results.
Stocks to Consider
Some better-ranked stocks in the basic materials space are Agnico Eagle Mines Limited AEM, The Scotts Miracle-Gro Company SMG and Barrick Gold Corporation GOLD, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Agnico Eagle has an expected earnings growth rate of 75.3% for 2020. The company’s shares have surged 66.2% in the past year.
Scotts Miracle-Gro has a projected earnings growth rate of 17.7% for fiscal 2020. Its shares have returned 58.5% over the past year.
Barrick has an expected earnings growth rate of 64.7% for the current year. The company’s shares have surged 131.9% in a year’s time.
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