The South32 Ltd (ASX: S32) share price is having a subdued day.
At the time of writing, the mining giant's shares are down over 1% to $3.72.
This compares unfavourably to the S&P/ASX 200 Materials sector, which is up 1.4% currently.
Why is the South32 share price underperforming?
The South32 share price has come under pressure today after the company lost one of its biggest bulls.
According to a note out of Goldman Sachs, its analysts have downgraded the miner's shares to a neutral rating and cut the price target on them by 21% to $3.70.
This price target is broadly in line with where the company's shares trading at present.
Why did Goldman downgrade its shares?
Goldman made the move after reducing its earnings estimate materially through to FY 2025.
The broker's EBITDA estimates have been reduced by 29% in FY 2023, 26% in FY 2024, and 34% in FY 2025 to reflect lower base metal price forecasts. It explains:
Downgrade S32 to Neutral (from Buy) based on our revised lower NAV valuation of A$3.78/sh and PT of A$3.7/sh on the back of our base metal price downgrades resulting in a modest FCF yield of just 3% in FY23E.
[W]e forecast a ~80% drop in EBITDA in FY23 on lower base metals prices and a FCF yield of just 3% despite a forecast ~10% increase in Cu Eq production, but an attractive 16% FCF yield in FY24 driven mostly by our expected recovery in base metal prices. For FY23, we forecast a sharp contraction in aluminium EBITDA from over US$1bn in FY22 to just ~US$300mn in FY23 on lower prices and elevated costs at the Hillside and Mozal smelters.
In light of this, the broker sees more value in fellow diversified miners BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (AX: RIO) and is recommending them as buys.
