On Thursday, BHP (ASX:BHP) Group Limited (NYSE:BHP:LN) (NYSE: BHP) received an upgrade from Neutral to Buy by a Citi analyst, with the price target held steady at GBP24.00. This revision follows a recent decline in BHP's share price, which has led the analyst to view the stock as attractively priced.
They noted that BHP is now trading at 5.0 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBTIDA) and 6.4 times price to cash flow (P/CF). These metrics are below the long-term average forward EV/EBITDA of 6.3 times and P/CF of approximately 8 times.
The analyst's decision to upgrade the mining giant's rating is based on the stock's valuation, which suggests that BHP shares are currently undervalued. The assessment indicates that the company is trading at multiples that are more favorable compared to historical averages, implying a potential investment opportunity.
The Citi analyst also maintained a positive outlook on Rio Tinto (NYSE:RIO) Group, another major player in the iron ore industry, highlighting its status as the least expensive among the large iron ore companies. Additionally, Rio Tinto has been recognized for having the highest mid-term production growth potential.
The upgrade of BHP by Citi comes at a time when investors are closely monitoring the commodities market and the performance of leading mining companies. BHP's current financial metrics, as pointed out by the analyst, suggest that the company's stock might be an attractive buy for investors seeking exposure to the sector.
InvestingPro Insights
The recent upgrade of BHP Group Limited (BHP:LN) (NYSE: BHP) by a Citi analyst to a Buy rating, despite the unchanged price target, aligns with several key metrics and InvestingPro Tips that suggest potential value for investors. BHP's market capitalization stands at a robust $140.61 billion USD, and the stock is trading with a P/E ratio of 19.51, which adjusts to a more attractive 15.42 when looking at the last twelve months as of Q2 2024. This adjusted P/E ratio indicates that the company's earnings are relatively undervalued compared to its share price.
Adding to the favorable view, BHP's dividend yield is notably high at 5.01%, a compelling factor for income-seeking investors. This is supported by an InvestingPro Tip that highlights BHP's consistent dividend payments over the past 45 years, reinforcing its reputation as a reliable income stock. Moreover, the company's stock is currently trading near its 52-week low, which may present a buying opportunity for those looking to capitalize on potential upside.
InvestingPro Tips further reveal that BHP has a strong free cash flow yield, suggesting that the company is generating ample cash relative to its share price, which could support future dividends and investments. Additionally, BHP's cash flows can sufficiently cover interest payments, indicating a healthy financial position. Investors can find more insights, including 7 additional InvestingPro Tips for BHP, at https://www.investing.com/pro/BHP. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for even deeper analysis and tips.
Overall, the Citi analyst's upgrade appears to be supported by BHP's solid fundamentals and the potential for value appreciation, as reflected in the InvestingPro data and tips. As the commodities market continues to attract attention, BHP's current metrics and long-standing industry presence could make it a noteworthy consideration for investors' portfolios.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.