Why is Morgans tipping 38% upside for the South32 share price?

The South32 Ltd (ASX: S32) share price has struggled in the past week, but could it have better days ahead?

Since market close on 26 August, the South32 share price has descended 6%. In today’s trade, shares in the miner spent all day in the red, closing 1.72% lower at $3.99 apiece.

So what is the outlook for South32 in the future?

Can the South32 share price go higher?

South32 is a global mining company that produces aluminium, copper, silver, lead, nickel, alumina, bauxite and metallurgical coal.

Broker Morgans is recommending investors add South32 shares. Analysts have placed a $5.50 price target on the South32 share price, 38% higher than the current price.

The broker noted that South32 had a strong cash flow, dividend profile and balance sheet.

South32 reported a 156% boost in underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) and 69% revenue jump in recent FY22 results.

The company’s ordinary dividend per share lifted 363% in FY21 to US22.7 cents, and the company announced a US 3 cents per share special dividend. South32 also delivered record production at Worsley Alumina in WA.

Morgans said despite South32’s costs increasing materially, it still managed to achieve margin growth. Analysts added:

Earnings multiples are regularly inconsistent value indicators in resources, but in S32’s case, we believe it shows the market is misjudging how much residual earnings power will remain in the business post cycle peak.

In FY23, South32 predicts group copper equivalent production to lift by 14%. South32 reported a net cash balance of US$538 million in its latest results.

Share price snapshot

The South32 share price has soared 24% in the past year, but it has lost nearly 1% year to date.

In the past month, the South32 shares have climbed more than 3%.

South32 has a market capitalisation of about $18.4 billion based on the current share price.

The post Why is Morgans tipping 38% upside for the South32 share price? appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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