BHP Billiton Set For A 21% Rebound!

Mining shares have been through a bad patch over the past few years, with a combination of Western recession and Chinese growth slowdown leading to a decline in metals and minerals prices.

But it’s a bit of a cyclical industry anyway, and what goes down must come up, surely? Well, after two years of falling earnings, BHP Billiton (LSE: BLT) (NYSE:BBL.US) has a very nice year forecast for 2014.

Good value

It won’t bring earnings back to 2011 levels just yet, but the 21% growth in earnings per share (EPS) being predicted right now would drag the P/E down to 12 based on the current 1,892p share price — and with dividends set to yield 3.8%, I reckon that’s looking good value.

BHP BillitonThe recovery is a little later coming than the folks at the City had been expecting, mind — 12 months ago they were predicting 2014 EPS of 188p, but that soon slipped to the 160p level being forecast today.

There shouldn’t be much growth to add by 2015, with forecasts suggesting level earnings, but we should at least see the dividend continuing to rise — this year’s expected 3.8% yield should hit the heights of 4%, and it should be more than twice covered by earnings.

Q3 update

BHP BillitonHow realistic are these prognostications? BHP Billiton’s year ends in June, and we’ve already had a nine-month operational update earlier this month. The firm talked of “strong momentum in the nine months ended March 2014 with record production achieved for four commodities and at 10 operations“, and upped its full-year guidance for iron ore and metallurgical coal.

Chief executive Andrew Mackenzie went on to say “We continue to expect cumulative production growth of 16 per cent over the two years to the end of the 2015 financial year“.

The most recent forecasts, which date from before the latest update and were informed by earlier guidance, are probably a little conservative now and we should perhaps expect the full year to come out a little ahead of the current consensus — especially as Mr Mackenzie is talking of production increases continuing well into the next financial year.

The bulls are out

Whichever way forecasts go between now and June, there’s a pretty bullish set of recommendations out, with only one lone forecaster out of 28 apparently believing we should sell BHP Billiton shares — 13 colleagues rate the miner as a Strong Buy, although the same number are playing it safe with a Hold rating.

It’s looking like a good time to get back into mining stocks.

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Alan does not own any shares in BHB Billiton.