Despite the flat total revenue and decreased earnings in its year-end release, BHP Billiton (BHP) has had success so far in 2012 with several projects in production and development. BHP Billiton is effectively divesting and postponing non-core expenditures, operations and assets in order to simplify its business model and increase efficiency. BHP Billiton is poised for revenue growth in the near term and long term behind the anticipated recovery of natural gas and copper prices beginning in 2013. BHP Billiton's commodity assets in China, the U.S. and emerging markets have the ability to substantially increase earnings beyond 2017.
BHP Billiton is most comparable to the largest mining firms in the world with diversified portfolios such as Vale (VALE), Rio Tinto (RIO), Barrick Gold (ABX) and Freeport-McMoRan (FCX). BHP Billiton currently has the largest market cap and highest stock price among these mining firms. Yet, it currently has the one of the lowest price-to-earnings ratios among these firms, Vale has the lowest. Barrick and Vale have lower PEG ratios, while they both have higher beta scores than BHP Billiton's beta of around 1.56. BHP Billiton has the second highest price-to-sales ratio aside from Barrick and it has one of the highest price-to-book ratios behind Freeport McMoRan. BHP Billiton has the lowest sales growth throughout the past five years but it is the only one of these firms with positive sales growth in the past quarter YOY.
At around 3.53%, BHP Billiton has the second highest dividend yield among these firms; it only trails Rio Tinto by less than 40 bps. At around 0.85 and 0.57, respectively, BHP Billiton has the lowest current and quick ratios among these firms while its 0.40 debt-to-equity ratio is the second highest, trailing only Barrick. Both Barrick and Vale have higher gross margins, while BHP Billiton has the highest return on equity, operating margin and net margin among these diversified mining firms. BHP Billiton's stock is currently trading at the smallest deficit YTD while it is the closest to breaking through its 52-week high. These figures indicate BHP Billiton is a dependable and established asset that has a high potential for near-term capital appreciation and growth while offering more value and higher margins for investors.
BHP Billiton's 2012 year-end earnings release underscored several reasons to remain bullish on its outlook for medium and long-term success. Total 2012 revenue was flat, decreasing 0.7% YOY to $72.23 billion. Profit from operations decreased 25.3% YOY to $23.75 billion while net operating cash flow decreased 18.9% YOY to $24.38 billion. The economic slowdown in Europe and China alongside the decreasing prices in natural gas and copper were the main catalysts for fluctuating markets and declining earnings. Yet, BHP Billiton had record production in 9 operations in 2012 alongside the 12th consecutive record for annual production in the Western Australian Iron Ore; a 5% YOY increase in WAIO production is expected for 2013. BHP allocated $22.8 billion for 20 projects underway in 2012; most of these projects will begin production before 2015. BHP committed $7.5 billion for eight approved projects and started production in six major projects during 2012. Four projects in the petroleum sector and four projects in the iron ore sector should start production by 2014.
Averaged realized prices for oil increased 19% YOY and LNG prices increased 29% YOY. In 2012, BHP Billiton increased its petroleum revenue by 20.5% to $12.94 billion, increased its iron ore revenue by 10.7% YOY to $22.6 billion and increased energy coal revenue by 9.4% YOY to $6 billion. Integration and development of shale liquid and gas assets, contributed 40% to the increase in total petroleum revenues. BHP Billiton is having sufficient success in Louisiana and Texas territories, specifically in the Eagle Ford play. Total oil and gas revenue for Petrohawk increased $171 million YOY; its natural gas production increased 37% YOY. Liquids production increased 60% in 2012; BHP projects a 15% YOY increase for liquids production in 2013.
Stainless steel revenue decreased by 22.5% YOY and base metals revenue decreased by 18.1% YOY. In 2012, average realized prices for copper decreased 14% while BHP reduced its copper extraction rate by 10% in the first three quarters. Yet, demand in China is expected to increase by 7% and worldwide demand for copper in 2013 is expected to increase 4.7% YOY from 1.5%. Stimulus efforts in China and economic stabilization worldwide are expected to spur growth in demand for copper and steel by mid-2013. With demands outpacing supply, analysts estimate BHP shares could increase 31% within the year.
BHP Billiton recently announced it is pulling back on its Olympic Dam expansion in order to mitigate costs and improve the economies of the massive project looking forward. The recent announcement exemplifies the willingness of management to adjust and adapt to the evolving market conditions and headwinds facing some of BHP's major projects worldwide. Long-term outlook on copper prices increasing remains strong so BHP Billiton is not pulling out of the project; it's simply revamping its approach to establish a less capital-intensive design looking forward.
BHP Billiton has effectively increased its natural gas portfolio while recently transitioning the focus to liquids production. It also remains as one of the top producers of copper worldwide. The increasing global demand for natural gas and copper that will drive prices up will put BHP Billiton is a very favorable position in the near-term and long-term. Urbanization and industrialization in emerging markets alongside economic stimulus efforts in China will all increase macroeconomic growth potential and bode well for BHP Billiton's outlook. The primary proponents for BHP Billiton's prominence are its diversified portfolio in commodity sectors worldwide in conjunction with retaining highly-profitable operations while aggressively managing liquidity and expenditures. I think interested investors should consider buying this stock now, while current shareholders should hold onto this stock long-term for reasonable dividends and capital appreciation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.