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South32 Ltd (ASX: S32) has been making significant strides in the stock market, with its shares surging by over 1% per day for the past 13 consecutive trading days. Trading at AU$3.29 on Friday, the mining giant's shares have displayed notable resilience, marking a 15.22% increase over the aforementioned trading period.
Just over two weeks ago, on 26 March, South32 shares closed at AU$2.89, hovering close to its 52-week low of AU$2.75 reached on 21 February. Investors who capitalised on the opportunity to invest AU$10,000 in South32 shares 13 days ago would now find their investment valued at AU$11,522.40, highlighting the potential gains from seizing a buy-the-dip opportunity.
Despite the recent uptrend, analysts remain optimistic about the prospects of South32 shares. Goldman Sachs, a leading brokerage firm, maintains a buy rating on South32 shares, setting a 12-month price target of AU$3.80. This projection suggests a promising 14% upside potential for investors who choose to invest in the ASX mining stock at its current valuation.
In a recent report, Goldman Sachs emphasised that South32 shares appear undervalued compared to its peers, particularly in terms of price-per-net asset value (NAV). The brokerage firm highlighted South32's diversified portfolio, which includes assets in copper, aluminium, and metallurgical coal, all of which are poised for growth.
Goldman Sachs forecasts a significant increase in earnings per share (EPS) for South32 in the coming years. While the brokerage has revised its EPS estimate for FY24 downwards to 10 cents per share, it anticipates a remarkable three-fold increase in EPS by FY25, reaching 31 cents per share and further rising to 36 cents per share by FY26.
The bullish outlook on South32 shares is supported by expectations of improving free cash flow (FCF) in the second half of FY24, driven by favorable market conditions for copper, aluminium, and metallurgical coal. Additionally, the recent sale of the Illawarra metallurgical coal operation is expected to provide a substantial boost to South32's financial position, potentially unlocking further value for shareholders.
Looking ahead, Goldman Sachs anticipates South32 to report a significant reduction in net debt by the end of June, paving the way for the potential resumption of share buybacks and an increase in dividend yield. With various base metal growth projects on the horizon, South32 is poised for continued growth and value creation, positioning it as an attractive investment opportunity in the mining sector.
