The Fortescue Metals Group Limited (ASX: FMG) share price is pushing higher today after a rise in the iron ore price offset a few bearish broker notes.
At the time of writing, the iron ore giant's shares are up 0.5% to $19.60.
What are brokers saying about the Fortescue share price?
In response to the company's second quarter update earlier this week, Citi, Credit Suisse and Goldman Sachs have released bearish notes.
For example, this morning Citi retained its sell rating and $17.00 price target. It feels the market is getting too optimistic with the Fortescue Future Industries business.
Over at Credit Suisse, its analysts downgraded Fortescue's shares to an underperform rating with a $14.00 price target. It believes its valuation is stretched, noting that its shares trade on much higher multiples than its peers.
Finally, Goldman Sachs has retained its sell rating and lowly $13.50 price target. Based on the current Fortescue share price, this implies potential downside of over 30%.
Why is Goldman bearish?
Goldman Sachs echoed Credit Suisse's concerns about the Fortescue share price in comparison to peers BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
It commented: "The stock is trading at c. 1.65x NAV vs. RIO at c. 0.9x NAV. FMG is pricing in c. US$80/t (real) long run iron ore vs. our US$67/t (real 2022 $) estimate, and trading at a significant premium to BHP & RIO, which we think is unwarranted considering the lack of diversification."
In addition to this, like Citi, the broker has concerns over its Fortescue Future Industries business. It feels that dividends will be impacted by its aim to decarbonise the Pilbara.
Goldman said: "We think decarbonising the Pilbara could cost FMG over US$7bn and requires +US$50/t carbon or a green premia to be NPV positive. FMG has outlined that the Pilbara decarbonisation project/assets would logically sit within FFI (although ultimately under a Power Purchasing Agreement (PPA) which would still be reflected on FMG's balance sheet). In order to fund FFI projects, we think FMG will need to reduce their dividend payout ratio from 80% to 50% from 2022 onwards."
All in all, these brokers appear to believe the next 12 months could be tough for the Fortescue share price.
