Is the FY25 outlook for Fortescue shares compelling?

Can the iron ore miner deliver a strong result in FY25?

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The Fortescue Ltd (ASX: FMG) share price has slid 20% over the past month, as the chart below shows. With this lower market capitalisation, investors are being offered better value when buying Fortescue shares. Does the FY25 outlook mean it's a good time to dig into the ASX iron ore share?

It's not surprising that investors aren't feeling as optimistic – the iron ore price has dropped from US$117 per tonne at the end of May to US$107 per tonne now.

A decline in the commodity price is bad news for miners – mining costs don't usually change much from month to month, so a reduction in revenue for the same amount of production usually results in a large decline in net profit.

Where will the iron ore price go next? No one can know for certain – commodity prices are both unpredictable and sometimes cyclical.

Iron ore price to rebound?

Trading Economics recently reported that economic data from China is adding to pessimism about the outlook for iron ore demand.

Chinese house prices in 70 cities declined by 3.9% year over year in May, the largest decline since 2015.

Another negative was that 'fixed asset investment' was lower than expected, which Trading Economics said unscored the "rout in the property market and consumers' reluctance to purchase real estate."

Chinese officials have been trying to reduce the country's growing housing inventory with various measures rather than supporting Chinese property developers in financial strife. Those developers are typically some of the world's largest users of steel and, therefore, iron ore, so their struggles can have a knock-on effect on the iron ore industry.

Finally, Trading Economics noted there was "muted" industrial demand in China, which was another headwind for iron ore because the hope was that "higher manufacturing growth would drive infrastructure-stemmed steel demand to offset the rout in construction."

However, it's worth noting the iron ore price has fallen to approximately US$100 per tonne (or below) a number of times over the past five years and then rebounded, though past performance is not a reliable indicator for the future.

Having said that, Trading Economics' macro models and analyst expectations suggest the iron ore price could reach US$126 per tonne in 12 months. If that happens, it could increase the company's profitability and fund larger dividends.

FY25 earnings estimate

The broker UBS, which is less optimistic about the iron ore price, has outlined in a note its expectations for Fortescue's FY25 numbers. UBS thinks the iron ore price will be around US$113 per tonne over the rest of the 2024 calendar year.

UBS forecasts Fortescue could see revenue of US$17.1 billion and net profit after tax (NPAT) of US$5.3 billion in FY25, with that profit forecast representing a possible year over year decline of 15%. The dividend per share could fall more than 23% year over year to A$1.28 per share.

Fortescue isn't expected to be producing green hydrogen meaningfully in FY25, so its efforts with green energy may not be material yet for Fortescue shares.

If the iron ore price is stronger than expected during the 2025 financial year, it could mean better financials than what UBS is predicting, but that would likely require an uptick in demand from China, which doesn't seem certain at this stage.

Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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