The Fortescue Metals Group Limited (ASX: FMG) share price is edging lower on Friday.
In morning trade, the iron ore giant's shares are down 0.25% to $13.98.
This means the Fortescue share price is now down over 43% in 2021 and has its 52-week low in sight.
Could the Fortescue share price keep falling?
Unfortunately for shareholders, one leading broker believes the Fortescue share price could still fall meaningfully from here.
According to a note out of Goldman Sachs, its analysts have retained their sell rating and cut their price target on the company's shares to $11.00.
Based on the current Fortescue share price, this implies potential downside of 21% over the next 12 months.
What did the broker say?
Goldman Sachs was disappointed with the company's performance during the first quarter. Not only did Fortescue fall short of the broker's shipments estimates, its price realisation and product mix were well under its expectations.
The broker commented: "FMG shipped 45.6Mt of iron ore in the Sep Q (-2% vs GSe) at an average price realisation of 73% vs. the 62% Fe benchmark, below GSe/consensus (77%) on provisional pricing impacts. Production of the higher grade 60% Fe West Pilbara Fines (WPF) declined to 3.7Mt or 8% of the product mix, well short of the targeted 15-20%, despite the new Eliwana mine now fully ramped-up to 30Mtpa."
Why is it so bearish?
Despite the Fortescue share price falling so heavily this year, Goldman believes it is overvalued. This is particularly the case compared to rival Rio Tinto Limited (ASX: RIO).
It explained: "The stock is trading at c. 1.5x NAV vs. RIO at c. 0.8x NAV. FMG is also pricing in c. US$77/t (real) long run iron ore vs. our US$67/t (real 2021 $) estimate."
The broker also has concerns over the widening of low grade iron ore price realisations.
Its analysts said: "Widening of low grade 58% Fe product realisations due to high coking coal prices and high steel mill margins (similar to the steel/iron ore market dynamics at the end of 2017). Based on the 58% Fe price, we see FMG's price realisations dropping to 70% in Dec Q."
In addition, Goldman has concerns over uncertainties around Fortescue Future Industries (FFI) diversification and Pilbara decarbonisation. It thinks "decarbonising the Pilbara could cost FMG over US$7bn and requires +US$50/t carbon or a green premia to be NPV positive."
