The Fortescue Metals Group Limited (ASX: FMG) share price had a day to forget on Friday.
The mining giant's shares ended the day over 8% lower at $14.76.
This means the Fortescue share price is now down over 25% since the start of the year.
Where next for the Fortescue share price?
Unfortunately, one leading broker believes the Fortescue share price hasn't bottomed yet.
According to a note out of Bell Potter, its analysts have downgraded the miner's shares to a sell rating and slashed the price target on them by almost 19% to $14.09.
This price target implies potential downside of 4.5% for investors from current levels.
What did the broker say?
Like many brokers, Bell Potter has concerns over the company's decarbonisation/Fortescue Future Industries (FFI) plans. It commented:
[T]he capital being committed to FFI is increasing significantly, as is the timeframe over which it is being committed. FMG has announced an investment in its decarbonisation strategy of US$6.2 billion through to 2030, or ~US$775m pa. The objective is the elimination of fossil fuel across its operations by 2030 and annual savings of US$818m once fully implemented. While the energy independence and savings guidance is attractive, much of the technology remains to be commercially developed and quantifying the benefits remains problematic.
The increased expenditure commitment to FFI and FMG's decarbonisation strategy is the key driver of a 19% reduction to our NPV-based valuation, from $17.33/sh to $14.09/sh. […] We downgrade our recommendation to Sell, largely on the impact of the increased FFI investment commitment.
This sentiment is echoed by analysts at Goldman Sachs, which are even more bearish on the Fortescue share price.
Last week, the broker reiterated its sell rating with a $13.80 price target. This suggests potential downside of 6.5% from current levels. The broker said:
We continue to think FMG is at an inflection point on capital allocation, and to fund the ambitious strategy, we assume the company raises ~US$5bn of new debt, reduces the dividend payout ratio from the current ~75% in FY22 to ~50% from FY24 onwards, and increases gross gearing to 30-35% by FY26 (in-line with the company's target of 30-40%).
