Brokers have downgraded the Fortescue (ASX:FMG) share price. Here's why

Fortescue Metals has fallen out of favour with a number of brokers. Let's take a look at some of the reasons why.

| More on:
Man in mining or construction uniform sits on the floor with worried look on face

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Analysts have downgraded the Fortescue Metals Group Limited (ASX: FMG) share price in response to ongoing issues with the miner's troubled Iron Bridge project.

The magnitite project in Western Australia has raised questions in the past due to potentially higher than expected capex expenditure. Pushback on the project deadlines and increasing costs are also some of the catalysts noted.

What do the brokers say?

Goldman Sachs is one of the brokers that has changed its investment rating on Fortescue Metals. 

In its report last Friday, Goldman said it expected a strong June quarter and a record final dividend in August, but rated the company a sell based on its valuation.

According to the report, Fortescue's net asset value (NAV) is trading at 1.6 times while rival iron ore miners BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) trade at just a 1 time multiple.  NAV is the value of an entity's assets minus the value of its liabilities. 

Grade depletion and ramp-up risks from Fortescue's troubled Iron Bridge project and its mines were also factors, the broker said.

In addition, Goldman expressed some doubt about the company's new green energy arm, Fortescue Future Industries (FFI).

FMG is targeting a 10% allocation of net profit after tax (NPAT) to Fortescue Future Industries (FFI) renewable energy projects (green hydrogen, solar, wind, etc) but only when a project is investment-ready.

Melbourne broker Shaw and Partners also expressed some doubts over Fortescue. In its newsletter to investors, it rated the miner a hold, also citing Fortescue's 12-week review of the Iron Bridge project as the main reason.

The company reminded investors that Fortescue was a success story and had produced more than a decade "of best in class track record at delivering large/complex mining projects on time and budget". But the report noted "it wasn't just cost and capex that got in the way, but 'culture issues' reared as an issue in early 2021".

Addressing the latter is critical to FMG's overall way forward.

As reported by Motley Fool, analysts at Morgan Stanley have retained their underweight $17.45 price target. The blowout from the Iron Bridge project and the fear of grade downgrades were again the main reasons stated. 

At the time of writing, the Fortescue share price is trading at $23.42, up 0.6%

Motley Fool contributor Frank Tzimas has no position in any of the stocks mentioned. 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 Bruce Jackson.

More on Resources Shares

Female miner in hard hat and safety vest on laptop with mining drill in background.
Resources Shares

Lynas share price slides on rare earths revenue headwinds

ASX 200 investors are pressuring the Lynas share price today.

Read more »

Man in yellow hard hat looks through binoculars as man in white hard hat stands behind him and points.
Resources Shares

What stage in the cycle are ASX iron ore shares (and are they a buy)?

Are iron ore miners closer to the end or beginning of the boom-bust cycle?

Read more »

A mining worker wearing a white hardhat and a high vis vest stands on a platform overlooking a huge mine, thinking about what comes next.
Resources Shares

Is BHP stock a good long-term investment?

Here's my view on whether the miner is worth owning for the long-term.

Read more »

Three miners looking at a tablet.
Resources Shares

Own ASX mining shares? Experts say an upswing in commodity prices has begun

HSBC economists Paul Bloxham and Jamie Culling explain why global commodity prices are rising.

Read more »

Open copper pipes
Resources Shares

ASX copper stocks in the spotlight as the red metal soars to 2-year highs

The copper price is up 15% in 2024. Can the red metal’s bull run continue?

Read more »

Woman in yellow hard hat and gloves puts both thumbs down
Resources Shares

4 ASX mining shares being hammered on quarterly updates

These mining shares are having a difficult session.

Read more »

Miner looking at a tablet.
Resources Shares

Here is the dividend forecast to 2028 for Fortescue shares

The potential dividend payments from Fortescue could surprise you.

Read more »

Female miner smiling at a mine site.
Share Gainers

Up 834% in a year, guess which ASX mining stock is hitting new all-time highs today

The ASX mining stock has gone from strength to strength over the past year.

Read more »