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.