Shares of mining heavyweight BHP Billiton Limited (ASX: BHP) have risen another 2.1% today, adding to yesterday's 2% gain after Credit Suisse provided a rather upbeat target price.
According to the Dow Jones Newswires, the investment bank thinks BHP's shares will rise to $21.50. Assuming it reaches that target price, that would represent their highest price since November 2015 (before they fell to a low of just $14.06) and a gain of 13.5% from their current price of $18.95.
By comparison, Goldman Sachs recently raised its price target by 2.9% to $18, while Deutsche Bank has a $19 target on BHP Billiton shares. Based on those figures, one could argue that BHP's shares are either fairly priced or overpriced.
The problem with trying to put a value on a mining business is that the miner itself is completely at the mercy of commodity prices. While BHP does have the ability to continue extracting unnecessary costs from its operations, lower commodity prices will still have a negative impact on margins and overall earnings.
Notably, iron ore and oil prices have regained some composure in recent months, and some investors believe they may have finally found a floor. But iron ore in particular has shown pockets of weakness again, highlighted by its sharp decline recently. Most analysts expect further falls in the second half of the year.
If those falls do ensue, BHP's shares may struggle to hit Credit Suisse's target, and may even struggle to maintain their current price tag. Of course, there may come a time where BHP's shares become too cheap to ignore, but right now, the potential headwinds seem too great.
