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Is the Fortescue share price a buy?

Is the Fortescue Metals Group Limited (ASX: FMG) share price a buy?

Investors boosted the Fortescue share price by 0.6% today after it announced that it had completed its term loan refinancing and repayment.

Fortescue has successfully refinanced and repaid its US$1.4 billion 2022 Syndicated Term Loan Facility. It repaid US$800 million using proceeds from the issue of a US$600 million senior secured note which was announced on 6 September 2018 and US$200 million from available cash.

It also extended its US$600 million term loan balance to 2025 on the same terms and conditions.

Fortescue CEO Elizabeth Gaines said “We are very pleased to have completed the refinancing and early repayment of the 2022 term loan which, together with the recent issue of unsecured notes, will reduce annual interest costs, flatten the repayment profile and extend maturities to 2027 while maintaining our balance sheet structure on investment grade terms and conditions.

“The strength of Fortescue’s financial performance together with the ongoing support of our relationship banking group and the US capital markets has allowed us to take advantage of the current market conditions to secure this outcome. Going forward, our flexible capital structure will ensure the long term sustainability of our operations, investment in growth and continued delivery of returns to our shareholders.”

Foolish takeaway

If iron ore prices remain around this level for the foreseeable future then Fortescue could be a solid buy with a huge dividend yield and it’s trading at under 8x FY21’s estimated earnings. But cyclical businesses are notoriously difficult to value – buying at the top of the market probably isn’t the best idea, so I’m giving it a miss.

I think it would be a better idea to buy shares of these growth shares instead.  

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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