Top broker Citi has raised its 12-month share price target on ASX 200 mining giant Fortescue Ltd (ASX: FMG) by 4.5% to $23 per share.
According to The Australian, Citi has done so because it is expecting higher earnings on Fortescue's lower-grade 58% fe iron ore compared to benchmark prices.
However, Citi has kept its sell rating on Fortescue due to its elevated share price, currently at $26.83.
The company's shares hit an all-time record high of $29.48 on 2 January amid rising iron ore prices.
Despite the price target lift, Citi says Fortescue shares are a sell.
Why does Citi say sell?
Citi analyst Paul McTaggart explains that in the short term, higher iron ore prices will benefit the iron ore pure-play more than its diversified peers in the mining sector.
But in the medium term, he thinks carbon pricing will make lower-grade iron ore less attractive to buyers. This may be problematic for Fortescue given it mines more lower-grade ore than its peers.
Goldman's take on the Fortescue share price
Goldman Sachs has similar concerns to Citi.
Goldman remains sell-rated on Fortescue as well due to its share price valuation relative to BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO), as well as a "widening of low grade 58% fe product realisations".
In a recent note, Goldman wrote:
We are Sell rated on: (1) Relative valuation vs. BHP & RIO, (2) Widening o of low grade 58% Fe product realisations over the medium to long term, (3) Execution and ramp-up risks on Iron Bridge and Gabon, (4) Uncertainties around Fortescue Energy diversification (such as the recent approval of the Phoenix hydrogen hub) and Pilbara decarbonisation and impact on dividend and balance sheet (although at US$140/t Fe FMG is on a ~10% FCF yield).
What do other analysts think?
The consensus rating on Fortescue shares published on CommSec is a moderate sell.
The rating fell from a hold on 12 December.
Of the 15 analysts comprising the consensus, 10 say sell and only one says buy. Four say hold.
We recently compared last year's Fortescue share price growth and dividend payments to that of ASX 200 lithium share Pilbara Minerals Ltd (ASX: PLS) and BHP.
