Looking for a commodities play that gets you into the metals, energy and the fertilizers? BHP Billiton Limited (BHP) is it. This Zacks #1 Rank (strong buy) is expected to see double digit earnings growth in both fiscal 2011 and 2012. Yet, shares are still cheap with a forward P/E of only 9.9.
BHP Billiton is one of the world’s largest commodities producers. Headquartered in Melbourne, it produces, aluminum, coal, copper, iron ore, uranium, nickel, silver and titanium minerals, and potash.
It also has production and exploration interests in oil and gas in 6 countries which puts it in among the top 15% of the world’s oil and gas producers.
Buying Petrohawk Energy
If BHP Billiton’s name sounds familiar, it’s because the company was recently in the news for its July 15 merger agreement with Petrohawk Energy, a U.S. onshore natural gas and liquids shale play.
BHP Billiton will pay $12.1 billion in cash for the outstanding shares of Petrohawk plus it will assume $3 billion in debt for a total value of $15.1 billion.
The deal is expected to close in the third quarter of 2011.
The merger will greatly expand BHP’s operations in the US by providing exposure to the Eagle Ford and Haynesville shales as well as the Permian Basin.
Petrohawk’s assets cover about 1 million net acres in Texas and Louisiana. It made $390 million in profit before tax in 2010.
Zacks Consensus Estimates Move Higher
Analysts appear to like the Petrohawk deal. The Zacks Consensus Estimate for both 2011 and 2012 jumped higher in just the last week.
For fiscal 2011, which ended in June 2011, the Zacks Consensus Estimate rose to $6.83 from $5.90 per share. That is earnings growth of 53%.
Analysts are also bullish on fiscal 2012. 1 analyst recently raised the full year estimate which pushed up the 2012 Zacks Consensus to $9.25 from $7.73 per share.
That is another year of double digit earnings growth of 35.4%.
BHP Billiton is expected to report 2011 results on Aug 24.
The Stock Is Still Cheap
Shares have pulled back from their recent 10 year high, making them even more of a value.
In addition to a P/E under 10, the company also has a price-to-book ratio of 2.7. That is under the 3.0 cut off I use for “value” stocks.
BHP Billiton also rewards investors, with a dividend currently yielding 2.0%.
During the financial crisis, the company was one of the few that did NOT cut its dividend. Instead, the dividend payout rose from 40 cents per share in Feb 2007 to 92 cents in Mar 2011.
BHP Billiton is a rare large cap company with low valuations which is also expected to produce double digit earnings growth. It’s expected to report earnings on Aug 24.
[In full disclosure, the author of this article owns shares of BHP.]
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
BHP BILLITN LTD (BHP): Free Stock Analysis Report
Zacks Investment Research
