One leading broker is warning investors that Mineral Resources Ltd (ASX: MIN) shares could be seriously overvalued at current levels and is urging them to sell.
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Who is bearish on Mineral Resources shares?
The team at Goldman Sachs is behind the bearish call on this mining and mining services company's shares.
According to a note from this morning, its analysts have downgraded Mineral Resources shares to a sell rating with a $53.00 price target.
Based on its current share price of $71.93, this implies potential downside of 26% for investors over the next 12 months.
It is also worth noting that Goldman isn't expecting big dividend yields like some analysts are predicting. It only expects dividend yields of 2.1% in FY 2023 and just 0.4% in FY 2024.
This is due to its belief that the company's free cash flow generation will be extremely challenging in the coming years.
What did the broker say?
There were three key reasons that Goldman Sachs downgraded Mineral Resources shares. It explains:
[We] downgrade MIN to Sell (from Neutral) based on: (1) Fully valued vs. peers and downside to revised PT (2) Lithium price expected to decline further from 2H23-25, (3) Positive medium term volume growth but negative FCF across FY24 & FY25 and stretched balance sheet.
In respect to its free cash flow, the broker adds:
Due to a step-up in growth capex at Ashburton and payments to Wodgina JV partner Albemarle, and our below consensus lithium price forecasts, we forecast negative FCF across FY23-25 and a FCF yield of -8%/-7%/-5% over these years.
All in all, the broker believes this makes Mineral Resources a resounding sell at current levels.
