Fortescue Ltd (ASX: FMG) shares have been under pressure this past month and are down 12% in that time.
Shares in the iron ore miner are also down 45% this year to date, currently priced at $16.27.
Despite challenges, some analysts believe the iron ore miner is positioned to navigate market downturns in iron ore.
Let's see what the experts think.
Fortescue well positioned
Iron ore prices are currently in a slump, trading down from highs of US$144 per tonne in January to sell at US$100 per tonne currently. This has impacted Fortescue shares.
According to Trading Economics, prices are "under pressure from soft economic data in top consumer China and rising inventories."
Senior equities adviser at Bell Potter, Giuliano Sala Tenna, also mentioned these points in an interview with The Australian Broadcasting Corporation.
Tenna highlighted that Fortescue remains one of the lowest-cost producers, which positions it to continue making money, even in tough times. Per the ABC:
Fortescue is now in a position where they have repaired their balance sheet and the company is still on a reasonably sound footing, they still are one of the lowest quartile cost producers…Fortescue should be able to make money through this cycle.
What people are asking is what isis Fortescue going to do with the cash flows. Are they going to continue to pursue on green energy investments which are lacking kitty to find return metrics or are they going to pivot into another commodity?
The company's focus on green energy investments has attracted attention. Still, investors are waiting to see if these ventures will provide returns or if Fortescue will choose other commodities to diversify its revenue base. For now, the company's cost-efficiency and focus on iron ore are keeping it on solid ground, Tenna says.
Other analysts have mixed opinions on the outlook for Fortescue shares.
Morgans has retained a buy rating on Fortescue shares with a trimmed price target of $22. According to my colleague James, Morgans is pleased with Fortescue's FY24 results and believes the stock offers attractive value, especially as iron ore prices gradually recover.
On the other hand, Goldman Sachs remains bearish. It reiterated its sell rating and lowered its price target to $15.40.
Goldman cited several concerns, including Fortescue's valuation compared to mining peers and the level of discounts for its lower graded iron ore.
The broker is also cautious about the "ramp-up risks" of Fortescue's Iron Bridge project. Aside from that, it projects Fortescue will lower its dividend:
[T]o fund the ambitious strategy, we assume the company reduces the dividend payout ratio from the current ~70% to ~50% from FY26 onwards…
Fortescue shares takeout
Fortescue shares may be on solid footing, but they are not without risks. For long-term investors confident in the iron ore market's recovery and Fortescue's ability to manage capital efficiently, the stock offers potential upside. However, with concerns over valuation and cash flow pressures, some analysts suggest a more cautious approach.
Investors should weigh the risks against the company's strong production capabilities and strategic positioning before making a decision.
