Fortescue Ltd (ASX: FMG) shares are having a good session on Thursday.
In morning trade, the iron ore giant's shares are up almost 2% to $16.50.
Should you be buying its shares as well? Let's see what analysts at Macquarie Group Ltd (ASX: MQG) are saying about the miner.
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What is the broker saying about Fortescue?
Macquarie has been looking at the mining sector ahead of the release of quarterly updates this month.
The good news is that the broker believes that the iron ore miner is positioned to outperform consensus shipments expectations in the fourth quarter. It said:
Similar to other iron-ore majors in the Pilbara region, FMG's shipments rebounded strongly after weak 3QFY25 due to weather impacts. We anticipate a strong finish to FY25 at FMG with a beat in iron ore shipments (+10%) at 57.1mt with realised pricing also matching VA consensus (0%) at US$82.2/t.
Another positive is that it expects Fortescue's unit costs to have improved quarter on quarter during the three months. Macquarie also expects a nice reduction in its net debt. It adds:
We forecast unit costs to improve on fixed cost dilution, and our C1 costs for 4QFY25 are 9% lower QoQ at ~US$16/t. Unlike in 3QFY25, where prices were supported by Australian cyclone disruptions, iron ore prices largely traded in a lower range of US$95-100/t in 4QFY25. Prices have since trailed off as the lull steel demand season sets in, and strong shipments at the fiscal year and quarter-end have led to the mild accumulation of total port stocks from mid-June onwards. As such, our 4QFY25 price estimate is 6% lower at US$82.0/t. We forecast net debt of US$1.4b by the end of June representing an 40% decrease QoQ.
Are Fortescue shares a buy, hold, or sell?
Despite the above, the broker isn't in a rush to buy Fortescue shares.
This morning, it has retained its neutral rating and $15.00 price target on them. Based on its current share price, this implies potential downside of approximately 9% for investors over the next 12 months.
And while it expects a 57 US cents (87 Australian cents) per share dividend in FY 2026, this ~5.3% yield only limits the total downside to approximately 4%.
Instead of Fortescue, the broker thinks investors should be buying BHP shares. It said:
With BHP currently presenting a relatively more stable and execution focussed offering versus RIO (whilst the RIO CEO succession process reaches a conclusion), we are drawn to BHP's lower cost asset position and lower iron ore beta (with Simandou coming online). Its near-term thinner FVCF yield versus RIO may be ameliorated by asset or infrastructure sell downs to finance growth, whilst RIO's inorganic growth strategy is currently unclear, presenting a risk to investors. We continue to prefer BHP over RIO and continue to see long term value in S32. We retain Neutral on RIO, FMG and MIN.
