This leading broker tips Fortescue Metals (ASX:FMG) share price to rise by 42%

Fortescue shares have dipped into the red on Thursday, but one broker predicts there are better things to come

| More on:
One businessman holds crystal ball while him and five others gather round to look into the future

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Fortescue Metals Group Limited (ASX: FMG) share price is wobbling today.

It jumped out of the starting blocks from the opening of trade to climb 0.44% to $20.42. However, at the time of writing, Fortescue shares are exchanging hands at $20.22 apiece, a 0.54% fall from yesterday's closing price.

What's been behind the Fortescue Metals share price lately?

Shares in Australia's largest iron ore producer have been on the down lately due to a pullback in iron ore prices.

For instance, the spot iron ore price fell by 3.3% overnight on Tuesday, which resulted in broad weakness across the iron ore miners' basket on the ASX.

Fortescue also reported a 74% year-on-year increase in revenue and grew net profit after tax (NPAT) by 115% to $10.3 billion in its FY21 results.

The company's growth engine is backed by an uptick in global iron ore production that is forecast over the coming years.

Despite these points, the Fortescue Metals share price is down 18% over the last month, to coincide with weakening iron ore markets.

What are brokers saying?

One leading broker, JP Morgan, has reiterated its overweight rating on Fortescue shares, and believes there is still further gains imminent.

As such it has assigned a $29 per share price target for the Fortescue Metals share price. This implies an upside potential of approximately 42% from the current trading price.

Conversely, peer investment bank Goldman Sachs has a sell rating on Fortescue shares, with a $19.90 price target.

What did JP Morgan say about the Fortescue Metals share price?

JP Morgan believes the company "offers exposure to long life operations, with attractive margins and expansion optionality over the long term".

Regarding the company's FY21 results, the broker said "the earnings result and dividend were in line with JP Morgan and consensus. Earnings remained clean and predictable, with a strong EBITDA [earnings before interest, taxes, depreciation, and amortisation] margin of 73%, and enviable balance sheet position of $2.7 billion net cash".

Regarding potential risks to the Fortescue Metals share price, its analysts added: "One of the key overhangs on the stock has been the announcement of a $500-$600 million spend on FFI (Fortescue Future Industries) in FY22. Unfortunately there is still a lack of detail on the breakdown. We have already captured the outflow in our model. However, it remains unclear how to generate a positive valuation on FFI at this stage. There is also no detail on the sequencing of projects on a multiyear look-ahead."

Bringing it all together, JP Morgan's overweight rating indicates it feels this could be a buying opportunity for investors.

Fortescue Metals share price snapshot

The Fortescue Metals share price has had a choppy year to date, posting a loss of around 13% since January 1. Despite this, Fortescue shares have climbed 12% into the green over the last year.

These results have lagged the S&P/ASX 200 index (ASX: XJO)'s return of around 25% over the past year.

The author Zach Bristow has no positions in any of the stocks mentioned. 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 Bruce Jackson.

More on Share Fallers

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Share Fallers

Why Evolution Mining, G8 Education, Lottery Corp, and Lynas shares are tumbling today

These shares are ending the week in the red. But why?

Read more »

Two men in hard hats and high visibility jackets look together at a laptop screen at a mine site.
Gold

Down 50% in a year, time to pounce on this beaten-down ASX 200 gold stock?

A leading expert offers his verdict on this beaten-down ASX 200 gold miner.

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why CBA, G8 Education, JB Hi-Fi, and Vault Minerals shares are falling today

These shares are falling on Thursday. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

These were the worst ASX 200 shares to buy in June

These shares took a tumble last month. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Domino's, Helia, Qantas, and Zip shares are sinking today

These shares are having a tough time on hump day. But why?

Read more »

A sad man looks at his computer screen as he holds a slice of pizza in his hand with an open pizza box in front of him on his desk.
Share Fallers

Why did the Domino's share price just crash 17%?

ASX investors just sent Domino’s shares tumbling more than 17% today. But why?

Read more »

Red arrow going down with share prices in red symbolising a falling share price
Share Fallers

These 5 ASX All Ords shares were the biggest fallers of FY25

These are the ASX All Ords stocks you didn't want to own in FY25...

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why CBA, HMC Capital, Mineral Resources, and NIB shares are falling today

These shares are falling on Tuesday. But why?

Read more »