Morgans describes the overall second quarter operational result as consistent. Production from West Australian Iron Ore (WAIO) and copper businesses were considered in-line and on track for 2021 guidance.
Petroleum was -7% below the broker’s estimates on a larger-than-expected impact from hurricane activity.
The analyst highlights the strength of iron ore spot prices is supplying a substantial earnings tailwind and an impressive dividend profile. Any unexpected supply losses from the wet season is expected to contribute to tight supply conditions and could see further price strength.
Finally, in anticipation of the February results season, Morgans previews all stocks under coverage. The broker settles upon 22 key stock buy ideas to guide investors toward expected positive price reactions.
An overweight exposure to resources shapes as one of the strongest sector allocation ideas for 2021, with the best opportunities in the lagging energy and gold sectors, notes the analyst.
The broker expects bumper earnings from tailwinds provided by strength in iron ore and copper prices. The company is considered likely to continue channelling meaningful cash flow into cash dividends, with some potential for a share buyback.
The Hold rating is unchanged and the target price lowered to $40.55 from $40.90.
Target price is $40.55.Current Price is $46.30. Difference: ($5.75) – (brackets indicate current price is over target). If BHP meets the Morgans target it will return approximately -14% (excluding dividends, fees and charges – negative figures indicate an expected loss).