We have downgraded our recommendation on BHP Billiton Ltd. – ADS (BHP) from Neutral to Underperform based on declining industrial demand on the back of sluggish economic growth in Europe and the U.S. Other headwinds include competition from peers, an upsurge in oil prices and rising inflation in the emerging markets.
Turning toward expenses, the cost of improving ore grades, mining disruptions due to natural calamities, governmental delays as well as currency fluctuations further thwart the stock. A slower global growth rate, on the back of the European crisis and a sluggish U.S. economy, may impact the demand for the company’s products and dampen revenue growth going forward.
Volatility in currency prices may have a significant impact on the company’s financial results going forward. Our $63.00 target price, 7.3x fiscal 2012 EPADS, reflects our Underperform recommendation.
