Zacks Investment Research upgraded BHP Billiton Limited (BHP) to a Zacks Rank #1 (Strong Buy) on Mar 4, based on impressive half-year fiscal 2014 results and a strong outlook for fiscal 2014.
Why the Upgrade?
BHP Billiton reported strong results for the first half of fiscal 2014, backed by year-over-year hikes in earnings as well as revenues. Adjusted earnings per American Depositary Share (ADS) came in at $1.52, increasing 83% year over year. Reported revenues were $33.9 billion, 6% higher than the prior-year quarter. Strong earnings resulted from higher production and reduced costs.
The company expects the economy to continue to revive in the coming quarters, mainly in China, thereby, boosting demand and prices of iron ore. In fiscal 2014, BHP Billiton anticipates capital and exploration expenditure to be roughly $16.1 billion. Free cash flow is expected to increase, which can be used to reduce debt from $27.1 billion to $25.0 billion.
Subsequent to the results, the Zacks Consensus Estimate for earnings per share increased 4.3% to $5.34 for fiscal 2014, while the same for fiscal 2015 increased 3.2% to $5.49, over the past 30 days, reflecting a year-over-year growth of 20.7% and 2.8%, respectively. BHP Billiton currently has an Earnings ESP of 6.74% and 5.65% for fiscal 2014 and fiscal 2015, respectively.
The company expects the global energy demand to increase over 30% in the next 20 years. The growth will be driven primarily by India, China and Africa. Also, it is believed that by 2030, 70% of the world’s energy will be supplied by oil, gas and coal. Such a huge rise in the demand for fuel places mining companies like BHP Billiton at an advantageous position.
Other Stocks to Consider
Apart from BHP Billiton, other stocks in the industry having a favorable Zacks Rank include Augusta Resource Corp. (AZC), Avalon Rare Metals Inc. (AVL) and Denison Mines Corp. (DNN). All these stocks hold a Zacks Rank #2 (Buy).
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