Why this broker just upgraded BHP shares to a buy rating

It could be time to snap up the Big Australian's shares.

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BHP Group Ltd (ASX: BHP) shares had a solid session on Wednesday.

The mining giant's shares rose 1.5% to end the day at $47.27.

Why did BHP shares push higher?

One potential reason why investors were bidding BHP shares higher on Wednesday was the release of a broker note out of Morgans.

According to the note, the broker has upgraded the Big Australian's shares to an add rating (the equivalent of a buy rating) with an improved price target of $51.10.

Based on the current BHP share price, this implies potential upside of 8.1% for investors from current levels.

In addition, the broker is expecting BHP to pay fully franked dividends of 203 US cents per in FY 2023 and then 271 US cents per share in FY 2024. This equates to yields of 6.4% and 8.5%, respectively.

What did the broker say?

The broker made the move on the belief that iron ore has come out of a slump in great shape. It commented:

Despite notable pessimism across consensus, we also have observed gradual but consistent upgrades to iron ore price forecasts from the street, leaving sentiment receptive to any contrary signs of firming demand or supply fundamentals.

While the market remains concerned with comments from the Chinese government around capping steel output at 2022 levels, we note that those levels are quite healthy – particularly when coupled with iron ore supply risks. [..] China iron ore stockpiles at port remain at healthy levels, suggesting increased iron ore imports are being consumed.

In light of the above, the broker believes that "BHP remains in the best shape, with the fewest hurdles, with attractive cash flow and dividend profile."

Overall, this could make BHP worth considering if you're looking for exposure to the mining sector. Morgans recommends "accumulating the big miner on any weakness."

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.

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