These ASX shares just got hit with a broker downgrade today

About Latest Posts Brendon LauBrendon's passion for shares started by accident in 2003 and he has worked in various roles …

| More on:
ASX shares skills shortage downgrade arrow causing the ground to crack symbolising a recession

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

The market is running out of puff but these ASX shares may have more things to worry about after they got downgraded by to brokers.

The S&P/ASX 200 Index (Index:^AXJO) slipped 0.1% into the red during lunch time trade after gaining 0.2% this morning.

ASX financial shares are leading the sell-off but the Cleanaway Waste Management Ltd (ASX: CWY) share price is also underperforming.

Overstretched valuation for this ASX share triggers downgrade

The Cleanaway share price fell 2.9% in the last hour of trade to $2.66 after Credit Suisse downgraded the waste management company to "underperform" from "neutral".

The broker's sell call comes after the shares recently hit its highest level since 2008. The market has gotten excited about Cleanway's move to acquire Suez's Sydney operations.

The deal looks set to go though as Cleanaway does not own any putrescible landfills in Sydney, noted the broker.

Getting cleaned out

However, Credit Suisse believes market expectations for the Cleanaway share price is set too high.

"Cleanaway recently guided to A$10-15mn lower EBITDA contribution from its New Chum landfill in FY22 due to planned lower volumes to avoid triggering end-of-life rehabilitation costs, before it secures a height extension," said the broker.

"We interpret this to mean that management thinks FY22 consensus forecasts are too high."

Credit Suisse lowered its FY22 EBITDA forecast by 4% to $570 million. This is due to lower contribution from New Chum and a slower than expected post-COVID-19 recovery.

As a result, the broker's 12-month price target on the Cleanaway share price falls by 10 cents to $2.40 a share.

ASX mining share's golden run hit by downgrade

Another that may have run ahead of fundamentals is the Fortescue Metals Group Limited (ASX: FMG) share price.

Morgans reckons now is the time to lock in profits as it downgraded the iron ore producer to "reduce" from "hold".

It's bearish outlook for the Fortescue share price is partly driven by the belief that the iron ore price has past its prime – at least for now.

Rising cost as iron ore price peaks

The broker also believes that cost inflation is a particular problem for miners that operate in the Pilbara.

Fortescue could be hit harder than most too. Not are its mines in the Pilbara, but it is currently undertaking a massive expansion project called Iron Bridge.

How much is the Fortescue share price worth?

"After a remarkable run, and hefty shareholder returns, we see the risk/reward balance for FMG finally skewed to the downside," said Morgans.

"A mass-scale low-grade pure iron ore producer, and fledgling energy aspirant, we see FMG as being particularly sensitive to a maturing iron ore cycle."

The Fortescue share price surrendered strong early gains to trade 1% in the red at $22.73 ahead of the market close.

Morgan's 12-month price target on Fortescue is $18.70 a share.

Brendon Lau owns shares of Fortescue Metals Group. Connect with me on Twitter @brenlau.

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 Broker Notes

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Broker looking at the share price.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Broker Notes

Guess which ASX 200 share offers 12% upside and a 4% dividend yield

Bell Potter just slapped a buy rating on this stock.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Broker Notes

Qantas or Telstra share price: Which will climb higher in 2024?

Let's see what top broker Goldman Sachs has to say about these ASX blue-chip stocks.

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Small Cap Shares

3 small-cap ASX shares with 'long runways for growth'

DNR's Sam Twidale reckons investors could do worse than buy these guys for the long run.

Read more »

Woman using laptop for job search
Investing Strategies

2 ASX 200 shares to buy for 'strong growth' at decent prices right now

Searching for a bargain? Here's a pair that Catapult's Dylan Evans has his eyes on at the moment.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

female in hard hat crosses fingers
Investing Strategies

The ASX 200 stock that could get second time lucky

These shares have failed to impress in 2024, but many experts believe it's a bargain buy.

Read more »