Why did the South32 share price just sink 7% to a 52-week low?

This mining giant just hit a 52-week low. But why?

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The South32 Ltd (ASX: S32) share price has taken a tumble on Friday.

At one stage today, the mining giant's shares dropped as much as 7.5% to a 52-week low of $3.38.

Why is the South32 share price tumbling into the red?

Investors have been hitting the sell button today after brokers responded reasonably negatively to the miner's FY 2023 results release.

In case you missed it, on Thursday the company reported a 20% decline in revenue to US$7,429 million and a sizeable 65% decline in underlying earnings to US$916 million. This forced the South32 board to cut its dividend by 64% to 8.1 US cents per share.

Broker response

This morning, South32 lost one of its biggest bulls when Macquarie downgraded its shares to a neutral rating from outperform. The broker also cut its price target by 18% to $3.60, which implies only modest upside from current levels.

Over at Goldman Sachs, its analysts responded by retaining their neutral rating and cutting their price target by 5% to $3.50.

In response to the release, the broker has trimmed its earnings estimates all the way out to FY 2026. Goldman explains:

We revise our FY24/25/26 EPS by -2%/-2%/-4% after adjusting for new production and cost guidance. Our NAV is down 3% to A$3.65/sh (from A$3.75/sh) mostly on downgrades to our Brazil alumina and aluminium NPVs on higher costs and slower ramp-up of the smelter, and higher capex at Worsley.

Our 12m PT decreases to A$3.5/sh (from A$3.7/sh) for S32.AX and to GBp200/sh (from GBp210/sh) for S32.L mostly on lower NTM EBITDA.

Overall, the broker feels that the South32 share price is fairly valued at the current level and sees more value in rivals BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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