BHP share price has 'no upside': Goldman Sachs

Goldman Sachs believes the BHP share price could have peaked…

| More on:
A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

The BHP Group Ltd (ASX: BHP) share price has been in sensational form this month.

Since the start of November, the mining giant's shares have smashed the market by storming 19% higher to $44.55.

Can the BHP share price keep rising?

Unfortunately, one leading broker is calling time on the BHP share price rally.

According to a note out of Goldman Sachs, its analysts have just downgraded the Big Australian's shares to a neutral rating with an improved price target of $42.90.

Based on the current BHP share price, this implies potential downside of just under 4% for investors.

What triggered the downgrade?

Firstly, Goldman notes that BHP is looking to acquire OZ Minerals Limited (ASX: OZL) and feels it "could improve returns from Olympic Dam." However, as this takeover is a long way from completion, it isn't included in its estimates.

In light of this, for the time being, the broker believes BHP's shares are now trading ahead of fair value and has thus downgraded them on valuation grounds. Its analysts explained:

Despite a lift in our BHP group NAV [net asset value] to A$41.8/sh after incorporating the 2-stage smelter at Olympic Dam in our base case and some nominal value for Oak Dam, we downgrade BHP to Neutral (from Buy) based on: (1) Valuation vs. global peers and no upside to revised PT of A$42.9/sh (from A$42.3; ~4% downside vs. our global Mining coverage at ~15% upside), (2) Lower production growth vs. peers, even with +US$20bn copper pipeline optionality, (3) Lower FCF vs. peers.

Goldman currently prefers rival mining giant Rio Tinto Ltd (ASX: RIO) and is recommending it as a buy with an improved price target of $114.70.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Broker Notes

Guess which ASX 300 stock was downgraded to sell today

Bell Potter has become bearish on this stock. But why?

Read more »

Young businesswoman sitting in kitchen and working on laptop.
Broker Notes

Is the ResMed share price still cheap? What the numbers say

Let's see what analysts are saying about this blue chip as it nears a 52-week high.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Broker Notes

What does Macquarie think REA shares are worth?

Top broker Macquarie has reviewed its rating and price target on REA shares.

Read more »

Woman checking out new TVs.
Broker Notes

Does JP Morgan think JB Hi-Fi shares can keep rising?

The retailer is up 16% for the year to date.

Read more »

A man in his 30s with a clipped beard sits at his laptop on a desk with one finger to the side of his face and his chin resting on his thumb as he looks concerned while staring at his computer screen.
Broker Notes

Should you buy CBA, Telstra, and Wesfarmers shares?

Let's see what analysts are saying about these blue chips.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Bell Potter just slapped a buy on this ASX 200 share offering a 30% return

Which stock is being tipped as a buy? Let's find out.

Read more »

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Broker Notes

3 of the best ASX stocks to buy now with $2,500

These shares are highly rated by the team at Bell Potter.

Read more »

A man in suit and tie is smug about his suitcase bursting with cash.
Broker Notes

2 big-name ASX 200 shares brokers rate as top buys

Let's see which shares could be in the buy zone right now.

Read more »