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Neutral on BHP Billiton - Analyst Blog
We are maintaining our Neutral recommendation on BHP Billiton Ltd (BHP). We believe that the company is well-positioned to reap profits from worldwide industrial and infrastructure progress, based on the transition of the emerging economies from construction to consumption-based growth. The ongoing industrialization in China, the largest iron-ore importer, and other developing economies, including India, hold future optimism and are expected to drive long-term demand for its products.
The company is committed to long-term growth through its key investment strategy. Such investments are expected to add momentum to the company's pipeline of high-return growth projects, which are diversified across commodity, geography and customers.
The company's centralized procurement of key input components, as well as its long-term partnership with suppliers, ensure easy accessibility to raw material and mining equipment. Moreover, its strategic acquisitions and the divestiture of non-performing assets help to control and strengthen its balance sheet while raising investor confidence on the stock.
The flipside scenario, however, raises concerns. Demand for the company's products is usually cyclical with a risk of a slower-than-expected global growth rate. Exchange rate fluctuations, a worldwide upsurge in oil prices and/or rising core inflation may also have a significant impact on the company's financial results.
Adverse weather conditions and geopolitical risks continue to impact BHP Billiton's financial health. Moreover, delays in mining approvals from governments and huge mining taxes continue to compress margins.
BHP Billiton faces industry-wide pressures from equipment shortages, labor crises, high cost competitors as well as volatile metal and mineral prices. Moreover, depleting natural resources and the subsequent search for new mines raise exploration and development costs.
However, the company still has a competitive advantage above its peers based on its diversified portfolio of low cost and high quality assets. The company competes with big industry players, such as Vale S.A (VALE) and Alcoa Inc (AA).
BHP Billiton carries a Zacks #3 Rank, which translates into a short-term (1-3 months) 'Hold' rating.
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The company is committed to long-term growth through its key investment strategy. Such investments are expected to add momentum to the company's pipeline of high-return growth projects, which are diversified across commodity, geography and customers.
The company's centralized procurement of key input components, as well as its long-term partnership with suppliers, ensure easy accessibility to raw material and mining equipment. Moreover, its strategic acquisitions and the divestiture of non-performing assets help to control and strengthen its balance sheet while raising investor confidence on the stock.
The flipside scenario, however, raises concerns. Demand for the company's products is usually cyclical with a risk of a slower-than-expected global growth rate. Exchange rate fluctuations, a worldwide upsurge in oil prices and/or rising core inflation may also have a significant impact on the company's financial results.
BHP Billiton faces industry-wide pressures from equipment shortages, labor crises, high cost competitors as well as volatile metal and mineral prices. Moreover, depleting natural resources and the subsequent search for new mines raise exploration and development costs.
However, the company still has a competitive advantage above its peers based on its diversified portfolio of low cost and high quality assets. The company competes with big industry players, such as Vale S.A (VALE) and Alcoa Inc (AA).
BHP Billiton carries a Zacks #3 Rank, which translates into a short-term (1-3 months) 'Hold' rating.
To read this article on Zacks.com click here.
Zacks Investment Research
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