In this week’s video blog, I fundamentally analyze BHP’s stock (BHP). I review BHP’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment.
In the recent months, the Federal Reserve has been injected a lot of money into the economy; This money creation devalues the US Dollar, and leads to higher inflation. During such a time, commodity prices rise, and companies involved with extraction and processing of commodities are the outperformers. BHP is well positioned to take advantage of rising commodity prices, as rising prices will help increase BHP’s profit margin. As value investors, it is important to review the company’s fundamentals before deciding to invest in any company. Hope you all find this 17.5 minute video blog interesting. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), etc.
After taking into account the current free cash flow of $8,806 million figure, a 5% growth rate of FCF (growth for the next 10 years), 10% discount rate, 2% long term growth rate (growth from 10 year mark to perpetuity), 2535 million shares outstanding, and $12,044 million of net debt, the DCF analysis yields us an intrinsic value of $49 per share. Using the current stock price of about $51.50 per share, and taking into account the past 10 years of free cash flows and future projects of free cash flows, we get the expected rate of return of 7.3%.
Timestamp
0:00 Introduction
1:47 Key Ratios Analysis
9:52 Discounted Cash Flow Analysis / Intrinsic Value
11:13 Expected Rate of Return Calculation
12:14 Summary / Conclusion
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References:
Morningstar’s Nucor Key Ratios Link: here.
Useful Resources here.
BHP is a world-leading resources company. BHP extracts and processes minerals, oil and gas, with more than 80,000 employees and contractors, primarily in Australia and the Americas. BHP’s products are sold worldwide, with sales and marketing led through Singapore and Houston, United States. BHP’s global headquarters are in Melbourne, Australia.
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