BHP upgraded at Goldman on valuation after YTD drop

BHP (NYSE:BHP) +1.3% in Wednesday's trading as Goldman Sachs upgraded to Buy from Neutral, citing attractive valuation after the stock's 15% drop since January alongside declining iron ore and copper prices largely due to lower than expected Chinese steel demand.

Goldman's Paul Young also noted OZL's Q1 result was disappointing on both production and costs, and thinks capital estimates for the Carrapateena block cave and West Musgrave projects seemed optimistic based on benchmarking and current industry cost inflation; he believes BHP (BHP) may need to reset OZL's medium term production and capex estimates while outlining possible synergies.

Despite the upgrade, Goldman said it continues to prefer Rio Tinto (RIO), which trades at a ~15% discount to BHP, has a stronger balance sheet, similar EBITDA exposure to iron ore and base metals, and has better medium-term production growth and free cash flow.

More on BHP:

• See financial and valuation comparisons to sector peers
• SA analysis: BHP: Cyclical Stocks Likely At Its Peak
• Stock price return: 5% loss YTD, 3.5% loss in the past 12 months