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Why the Fortescue (ASX:FMG) share price is storming higher today

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The Fortescue Metals Group Limited (ASX: FMG) share price has started the week strongly.

In afternoon trade the iron ore producer’s shares are up 5% to $25.51.

This latest gain means the Fortescue share price is now up 120% since this time last year.

Why is the Fortescue share price charging higher today?

Investors have been buying Fortescue shares on Monday after a leading broker responded positively to its update at the end of last week.

That update revealed that Fortescue has been benefiting greatly from the sky high iron ore price.

So much so, the mining giant revealed that, based on unaudited management accounts, its net profit after tax for the month of December came to a whopping US$940 million.

To put that into context, that monthly profit is more than the market capitalisation of fellow iron ore miner Mount Gibson Iron Limited (ASX: MGX).

The company also provided guidance for the first half ahead of the formal release of its results on 18 February.

It advised that its net profit after tax for the six months ended 31 December 2020 on an unaudited basis will be in the range of US$4 billion to US$4.1 billion.

This will be an impressive 60% to 64% increase on the net profit after tax of US$2.5 billion it achieved in the prior corresponding period.

What did the broker say?

According to a note out of Ord Minnett, Fortescue’s guidance was in line with its expectations for the first half.

In light of this, the broker has retained its buy rating and $29.00 price target on the company’s shares.

Based on the current Fortescue share price, this price target implies potential upside of almost 14% over the next 12 months.

In addition to this, the broker is expecting the company to generate significant free cash flow this year. This is likely to be returned to shareholders through generous dividend payments.

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Motley Fool contributor James Mickleboro 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 Bruce Jackson.

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