BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium.
Regulators in Australia and Canada have recently forced the company to cancel two big deals.
In October 2010, BHP called off its plan to merge its iron-ore operations in Australia with those of Rio Tinto Ltd. (New York symbol RIO).
In November 2010, the company dropped its $38.2-billion hostile takeover bid for Potash Corp. of Saskatchewan (New York and Toronto symbol POT). The Canadian government decided that the deal did not provide a “net benefit” to Canada under the Investment Canada Act, which governs foreign takeovers of Canadian companies.
BHP spent $350 million on the Potash Corp. takeover attempt, mostly fees paid to banks to arrange financing. To put this cost in context, the company earned $12.5 billion, or $4.48 per ADR, in the fiscal year ended June 30, 2010 (each American Depositary Receipt represents two BHP common shares).
Even so, BHP recently announced that it will resume buying back shares. It has $4.2 billion remaining on its current authorization. That’s equal to 1.7% of its market cap.
Demand for BHP’s commodities should keep rising, thanks to strong economic growth in China, Russia, India and Brazil. The company should earn $6.62 per ADR in fiscal 2011. The stock trades at 13.4 times that estimate. It also trades at 12.4 times BHP’s projected cash flow of $7.15 per ADR.
We first recommended BHP at $37 in the March 2009 Wall Street Stock Forecaster. Based on today’s price, that’s a 140.5% gain in less than two years.
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