BHP Billiton Retained at Neutral - Analyst Blog


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Despite impressive future growth potential, we reiterated our Neutral recommendation on BHP Billiton Limited ( BHP ) on Feb 4, 2014, as we are worried about the reduction in prices for most of its commodities.

Why the Retention at Neutral?

BHP Billiton reported improved year-over-year production volumes in the first half of 2014. The company witnessed a rise in production of copper, iron ore, metallurgical coal, alumina, aluminium, manganese alloy and nickel. However, production of petroleum products and energy coal declined.

We expect the company to benefit from the various projects it has undertaken. While six projects have started producing in the first half of 2014, the remaining 10 projects are expected to start production before the end of fiscal 2015. Additionally, BHP Billiton's Western Australia Iron Ore production is expected to grow significantly in the coming quarters.

BHP Billiton also has a competitive advantage based on its diversified portfolio of low-cost and high-quality assets. This may help the company derive profits from industrial and infrastructural transition worldwide. The company is also in the process of trimming its product portfolio to focus more on the competitive ones.

However, BHP Billiton has been witnessing reduction in prices for most of its commodities. Average selling prices of iron ore and coking coal declined 17% and 34% year over year, respectively, in fiscal 2013.

Also, operational risks including mining disruptions, due to bad weather conditions, may prove detrimental to the company's growth. Delays in government permits for project development and civil engineering have increased the company's operating costs over a considerable period of time.

Other Stocks to Consider

BHP Billiton currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry worth considering include Stillwater Mining Co. ( SWC ), Augusta Resource Corp. ( AZC ) and Denison Mines Corp. ( DNN ). While Stillwater Mining sports a Zacks Rank #1 (Strong Buy), Augusta Resource and Denison Mines hold a Zacks Rank #2 (Buy).

AUGUSTA RSRC CP (AZC): Get Free Report

BHP BILLITN LTD (BHP): Free Stock Analysis Report

DENISON MINES (DNN): Free Stock Analysis Report

STILLWATER MNG (SWC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: AZC , BHP , DNN , SWC

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