South32 Ltd (ASX: S32) shares have sold off sharply over the past month and are down 20% since then.
A chunk of this followed the miner's full-year update on Monday, with investors driving the stock more than 12.5% lower.
South32 downgraded its FY25 production guidance, sparking a sharp sell-off in its shares. They now rest at $2.99 apiece before the open on Tuesday. You can see this selling pressure in the chart below.
Markets move in cycles and can overreact to 'bad' news. Sharp corrections can often serve as terrific entry points for the patient investor.
With prices so heavily compressed, one might ask, is now the time to buy South32 shares? Here's what the experts say.
Image source: Getty Images
Brokers upgrade South32 shares
Following the heavy sell-off in recent months, one broker has turned constructive on South32 shares.
Citi upgraded its rating on South32 to a buy from a hold, suggesting that yesterday's negative reaction from investors could present a buying opportunity.
It acknowledges the risks associated with the reduced FY25 guidance. Analyst Paul McTaggart did lower his price target on the stock to $3.35, a 16% reduction.
But he also finds it difficult to ignore the potential upsides from here. According to The Australian:
…[A]t $3.00 a share, we think bad news is captured and expect some moderation on environmental conditions.
Before South32's full-year results, Goldman Sachs reiterated its buy rating on the share with a $4.00 per share price target. Although it will be interesting to see Goldman's comments in the coming days to weeks after its results, for now, it remains in the buy camp.
Macquarie also recommended a buy beforehand but cut its valuation on South32 shares overnight.
The broker now values the mining giant at $4.00 apiece (versus $4.25 previously) but, critically, did not change its rating.
South32 is also still rated as a buy by CommSec, but there's no telling what might happen as analysts digest the company's revised FY25 outlook.
South32's challenging update
The company's shares were heavily sold again on Monday after it downgraded its FY25 production guidance.
In Q4 FY24, the mining giant reported a 10% quarter-on-quarter increase in copper production to 15.3kt, achieving 98% of its FY24 copper equivalent production guidance.
But despite this, it lowered its FY25 production guidance for alumina, copper, and zinc by 5%, 7% and 9%, respectively.
CEO Graham Kerr said the business booked "sequentially higher volumes" in "the majority" of its divisions.
However, the company also announced significant pre-tax impairment expenses totalling approximately US$818 million for its Worsley Alumina and Cerro Matoso assets.
Foolish Takeaway
South32 shares have experienced significant volatility of late. This can be typical of ASX mining stocks.
While the recent dip may present a buying opportunity, it's essential to consider the risks and perform your own due diligence. Mining stocks are a highly specialised area that requires substantial analysis to make informed decisions.
Nonetheless – at this stage anyway – analysts remain cautiously optimistic about South32's future.
