The Fortescue Metals Group Limited (ASX: FMG) share price may have fallen heavily this year but one leading broker isn't in a rush to invest.
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Why isn't the broker positive on the Fortescue share price?
According to a note out of Morgans, its analysts have retained their hold rating but lifted their price target on the company's shares to $16.90.
Based on the current Fortescue share price of $18.46, this implies potential downside of 8.5% for investors.
Morgans notes that the company has announced plans to transition to new leadership which will support its shift to becoming a global diversified energy and resources player.
However, the broker suspects the company may struggle to find a new CEO with experience in iron ore and renewables given how different they are.
What else did the broker say?
The note reveals that Morgans believes the next five years will be difficult for Fortescue due to the evolving iron ore market. In light of this and its expectation that the company will remain entirely dependent on iron ore earnings for at least the next decade, it feels management's bold transition plans are risky.
It commented: "Given the iron ore dynamics, we had expected FMG to diversify actively but had thought a safer option might have been to enter other mature markets (i.e. base metals) where cycles and economics are already well established and understood, allowing for a faster transition."
"Instead FMG has prioritised diversification through combating climate change in various markets, the projects for which are typically capital hungry with less certain (and often lower) return profiles."
In light of the above, Morgans' analysts have maintained their "Hold rating on FMG, but have lost conviction in the overarching strategy and capital framework."
