Why are BHP shares still falling?

• BHP Group (ASX: BHP) share price drops to A$36.41 on Monday
• Its shares have seen four straight sessions of losses
• In the near term, BHP may continue to face headwinds
• Keen to take advantage of BHP’s falling share price? Open an account with us to short the stock now.

What’s weighing on the BHP stock price?

Inflation worries as well as softer iron ore prices dragged Australian mining majors’ stock prices lower on Monday.

BHP lost 0.5% day-on-day to close at A$36.41, extending the share price’s losses to a fourth consecutive session.

Research teams were largely bullish on the Australia-listed BHP counter. As of Sunday night, nine analysts rated it a ‘buy’, four recommended ‘hold’, and none gave ‘sell’ calls, Bloomberg data showed.

Their average 12-month price target stood at A$46.92 per share, which implied a potential upside of nearly 29% based on Monday’s close.

Last week, Macquarie and Bernstein each maintained their ‘outperform’ ratings on BHP, but lowered their target prices slightly to A$54 and A$41, respectively, from A$56 and A$45 previously.

Jefferies analysts cut their ratings for BHP and its rival Rio Tinto Group to ‘hold’, from ‘buy’ previously, citing ‘near-term downside risk to iron ore and to consensus forecasts, declining capital returns, accelerating cost pressures, and increased operating risk’.

BHP could see portfolio catalysts, says Bloomberg

The Bloomberg Intelligence (BI) research team wrote last Friday that BHP has relatively lower exposure to iron ore and more leverage to copper, versus Rio Tinto and Vale. That puts the mining giant in a better position in the coming years, compared to the two peers, BI added.

From an absolute standpoint, ‘higher-than expected capital returns, less scope for estimate reductions, and portfolio catalysts may be key drivers’ for BHP, the analysts noted.

Furthermore, BHP’s pending divestiture of its petroleum division, though incomplete, might be underappreciated, they said.

‘Other catalysts could include a de-merger of its thermal coal (New South Wales, Colombia) and lower-quality met coal (BHP-Mitsui joint venture) assets,’ BI opined.

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Deutsche Bank foresees near-term headwind persisting

While value has emerged in BHP shares after the stock’s recent pullback, Deutsche Bank expects weak steel production trends in China to remain a headwind to iron ore prices in the near term.

Meanwhile, Deutsche Bank’s research team also described BHP’s exit from petroleum as ‘a good strategic step’. However, the analysts see limited valuation uplift from the disposal, which could leave BHP short on growth options and increase the likelihood of copper and nickel acquisitions.

Regarding the group’s 1Q FY2022 production report, Barclays analysts said the group ‘got off to a mixed start’ to its fiscal year, ‘with decent performance in petroleum and Western Australian iron ore offset by a weaker quarter in copper and metallurgical coal’.

Barclays expects a limited impact on BHP’s forward estimates. The production report, released late last month for the quarter ended September 2021, had shown a lower quarterly output and flagged a manpower shortage.

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