Is BHP's Cheap Valuation Reason Enough to Bet on the Stock?

BHP Group Limited BHP currently trades at a forward price-to-earnings multiple of 15.38X, a discount to the Zacks Mining - Miscellaneous industry’s average of 16.31X.

The stock is, however, trading at a premium compared with miners like Rio Tinto Group RIO and Vale S.A VALE, at 12.84X and 7.92X, respectively.

BHP shares have gained 28.4% in the past six months, outperforming the industry’s 23.4% growth. The Basic Materials Sector and S&P 500 have gained 21.0% and 2.4%, respectively. Over the same period, Rio Tinto and Vale have fared better, gaining 36.7% and 34.1% respectively.

BHP’s 6-Month Price Performance vs. Industry, Sector & S&P 500

BHP’s 6-Month Price Performance vs. RIO & VALE

Against this valuation and performance backdrop, the key question for investors is whether BHP’s operational strength justifies its relative premium.

BHP’s Low-Cost Engine WAIO Drives Iron Ore Business

BHP produced 133.8 Mt of iron ore in the first half of fiscal 2026, up 2% year over year. Production at Western Australia Iron Ore (WAIO) was a record 129.8 Mt (146.6 Mt on a 100% basis). It is already halfway through the expected production for fiscal 2026 and is poised to offset the impact of a typically wet third quarter. Also, WAIO has been the lowest-cost iron ore producer globally for more than four years.

For fiscal 2026, BHP expects iron ore production of 258-269 Mt, with WAIO contribution at 251-262 Mt (284-296 Mt on a 100% basis). This factors in the planned renewal of Car Dumper 3 (CD3) and the ongoing tie-in activities for Rail Technology Program 1 (RTP1). 

Over the medium term, WAIO production is expected to exceed 305 Mt annually, supported by expanded rail operation capacity unlocked by RTP1 and the Western Ridge Crusher Project, which will replace production from the depleting orebodies around Newman with first production in the first quarter of fiscal 2027. BHP is investing in a sixth car dumper and related infrastructure at Port Hedland.

BHP’s Focus on Future-Facing Commodities Strengthens Outlook

BHP continues to reshape its portfolio toward commodities such as copper and potash, allocating nearly 70% of its medium-term capital expenditure to these areas. This strategy positions the company to benefit from decarbonization, electrification, population growth and rising living standards in emerging markets.

Copper production reached 984 kt in the first half of fiscal 2026. Escondida achieved record concentrator throughput and improved recoveries, aided by operational enhancements. Copper SA delivered a record amount of material mined.

Fiscal 2026 copper output is targeted at 1,900-2,000 kt (raised from 1,800-2,000 kt). BHP’s project pipeline could add two Mtpa of attributable copper output by the 2030s.

BHP is also advancing the Jansen Stage 1 potash project, a large-scale, low-cost, high-grade resource with a mine life exceeding 100 years. It is 75% completed and BHP is working toward its first production by mid-2027. Once operational, Jansen Stage 1 is expected to produce 4.35 million tons of potash annually. Stage 2 of the project has been 14% completed and is expected to deliver its first production in fiscal 2031. 

These investments will transform Jansen into one of the world’s largest potash mines, doubling production capacity to 8.5 million tons per year, positioning BHP as a major global producer of potash by the end of the decade.

BHP’s Strong Cash Flow Supports Ongoing Investment

BHP has delivered a net operating cash flow of more than $15 billion from fiscal 2010 to fiscal 2025 (barring fiscal 2016). Strong cash flows have enabled the company to materially reduce debt, with net debt at $12.9 billion at fiscal 2025-end, within its target of $10-$20 billion. Capital and exploration spending is budgeted at $11 billion for fiscal 2026 and 2027, averaging $10 billion annually from fiscal 2028 to 2030. 

BHP’s Earnings Estimates Indicate Y/Y Growth, Trend Upward

The Zacks Consensus Estimate for BHP’s fiscal 2026 earnings is pegged at $4.68 per share, indicating 28.6% year-over-year growth. The estimate for fiscal 2027 is  $4.72, suggesting a 0.85% rise.

The Zacks Consensus Estimate for fiscal 2025 and 2026 has moved north over the past 90 days.

Supportive Price Trends Will Favor BHP

Iron ore prices have started 2026 on a strong note and are currently around $101 per ton, buoyed by strong demand and ongoing supply constraints in China. Steelmakers have been restocking ahead of the Lunar New Year holiday in February, with tight domestic supplies lending support. Going forward, rising steel demand, fueled by strong economic development and urbanization, will lead to high demand for iron ore and support prices.

Copper futures are up 26% in a year and are around $5.90 per pound. Copper has gained this year amid expectations of a tightening in global supply due to high demand. The long-term outlook for copper is positive, as demand is expected to grow, driven by electric vehicles, and renewable energy and infrastructure investments while supply remains tight.

BHP’s Industry-Leading Dividend Yield, Returns Add to Appeal

The company’s current dividend yield of 3.28% is higher than the industry’s 2.03% and the S&P 500’s 1.06%.

BHP’s return on equity, a profitability measure of how prudently the company is utilizing its shareholders’ funds, is 17.7%, way higher than the industry’s average of 1.25%.

Our Final Take on BHP Stock

BHP combines best-in-class iron ore operations, accelerating exposure to copper and potash, and disciplined capital allocation. A supportive commodity price backdrop, rising earnings estimates and a robust balance sheet further strengthen its outlook.

With an industry-leading dividend yield, improving profitability and an attracive valuation relative to the industry, BHP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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