Shares in iron ore giant Fortescue Metals Group Limited (ASX: FMG) are up in afternoon trade, trading up 1.96% at $22.94.
As the price of iron ore begins to curl upwards from 52-week lows in November last year, iron ore players like Fortescue are back in fashion once more in 2022.
After taking a beating last year, both iron ore and the Fortescue share price had reached a low point before rekindling the flame to trade back at levels not seen since 1H 2021.
In the last month, the price of iron ore has gained 22% as market pundits are now pricing in an uptick in demand once global construction picks back up at the normal pace.
This bodes in well for Fortescue, given it is a price taker whose share price fluctuates with volatility in the iron ore markets. This relationship is shown in the chart below.
With this rally, analysts at JP Morgan have since chimed in on the investment debate, offering their outlook on Fortescue shares in 2022. Let's take a closer look.
What's in store for Fortescue this earnings season?
JP Morgan analysts are constructive on Fortescue's upcoming earnings results and forecast profits to land slightly ahead of consensus.
Buoyant iron ore markets and the company's pivot into new ventures are attractive points in the iron ore giant's case, JP Morgan says. It recently updated its FY22/23 estimates and prescribed a 46% and 35% upgrade to earnings respectively.
"We look for 1H22 NPAT of $2.77 billion (consensus $2.70 billion) and expect a dividend of 86 cents per share (70% payout)– in line with consensus", the broker noted in its release to clients.
Analysts at the firm also note that Fortescue offers investors exposure to long life mining operations, "with attractive margins and expansion optionality over the long term".
Even with these factors, JP Morgan retains its neutral rating on the stock, citing several risks that need to be considered.
"The market continues to look for material details on hydrogen plans, along with progress on Iron Bridge" it said, a view it held fairly consistently last year.
"Our December 2022 price target is set in line with our valuation, rounded off to the nearest dollar" the broker noted, reinforcing its neutral stance on Fortescue shares.
The broker is also forecasting iron ore prices to increase across all major spot and futures contracts this quarter, implying a 47%–61% jump and then a 19%–22% spike the subsequent quarter.
Aside from that, its analysts are tipping Fortescue to trade on a 5.8% dividend yield in FY23 and 5.6% in FY24, slightly behind some competitors.
It also estimates the company to deliver a half year adjusted EBITDA of $4.8 billion, whereas the consensus of analyst estimates has Fortescue generating $2.07 billion in net profit.
"Our FMG valuation rises 4% on the new price deck with our FY22/23 earnings up 46%/35%, respectively" the broker concluded.
Fortescue reports earnings on 16th February. Investors can tune in then.
A bit more on Fortescue shares
Fortescue shares have pared gains in the past 12 months and have lost 3% in that time.
This year to date the picture is completely different, however. Since trading started on January 4, shares have spiked more than 19% and are now up over 11% for the month. This is ahead of the benchmark index.
