On Mar 31, 2016, Zacks Investment Research downgraded BHP Billiton Limited BHP to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies with a Zacks Rank #4 are likely to perform weaker than the broader market over the next quarters.
Why the Downgrade?
The current macroeconomic environment is posing several challenges for the mining industry. Apart from China, economic growth in other emerging markets have also remained sluggish till 2015-end. Soft demand from a major industrial goods consumer like China and other economies is affecting the sales of mining giants such as BHP Billiton.
Moreover, volatility in the oil and financial markets raises concerns. Also, dismal commodity pricing continues to affect BHP Billiton's top line. Weaker demand for industrial raw materials in China has been weighing on the cyclical commodity market and gradually lowering the prices of several products such as iron ore, bauxite and copper.
To attain greater cost efficiency, BHP Billiton enhances productivity at its mining facilities over time. However, subsequent increase in output will in turn disrupt the supply–demand scenario in the commodity market and lower the prices of materials. This will hurt the company's top line and bottom line, going ahead.
Further, intense competition exposes BHP Billiton to risks of market share loss, limits the pricing power and in turn lowers revenues.
As a result, over the last 30 days, the Zacks Consensus Estimate for 2016 earnings plunged 53.6% to 26 cents and 24.7% to 55 cents for 2017.
The company is undertaking initiatives to increase economies in production, improve capital deployment and simplify portfolio to counter these headwinds.
Stocks to Consider
Some better-ranked stocks within the industry are Anglo American Platinum Limited AGPPY, General Moly, Inc. GMO and Golden Minerals Company AUMN. All the three stocks hold a Zacks Rank #2 (Buy).
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