Up 20% in a month: Is the Fortescue (ASX:FMG) share price a buy?

Fortescue shares have gone up. But is it a buy?

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The Fortescue Metals Group Limited (ASX: FMG) share price has gone up by 20% over the last month. But what about now, is the business worth buying?

Fortescue's outgoing CEO, Elizabeth Gaines, has partly attributed the strength of the performance of Fortescue shares down to its expansion into green energy and other initiatives.

Fortescue CEO Elizabeth Gaines recently said according to The Australian:

If you track our share price over the last three, four years or longer, it will just match the benchmark. But more recently, in the last two to three months, we've seen that decoupling. We've actually outperformed the fall in the iron ore price and we outperform the peers.

What do analysts think of the Fortescue share price?

Different brokers have various ratings on the company.

Morgan Stanley currently rates the iron ore miner as a sell, with a price target of $14.05, suggesting a possible drop of the shares by around 25%. This broker is concerned about the direction of the iron ore price, leaving Fortescue vulnerable.

However, in the exact opposite of those thoughts, the broker Macquarie Group Ltd (ASX: MQG) believes that Fortescue is a buy because China could enact policies that help the iron ore price. The price target is $21 – around 10% higher than where it is today.

Morgans' current rating on the business is a 'hold'. However, whilst it did recently significantly lift its price target to $16.90, the broker is not a fan of the shift to renewables by the company. There are opportunities in other resources, or at least focusing on its core competency of iron.

Expectations of a big dividend

There may be questions about what direction the Fortescue share price is headed, but brokers are expecting a big dividend in FY22.

Morgans thinks that Fortescue's grossed-up dividend yield this financial year is going to be 9.7%.

Macquarie has estimated that Fortescue's grossed-up dividend yield for FY22 is going to be 14.9%.

That adds to the large dividends that Fortescue has already paid over the last couple of years.

Fortescue Future Industries (FFI) is making progress

FFI has been announcing some sizeable deals in recent months.

For example, it has announced with the Queensland Government the construction of the world's largest electrolyser, renewable industry and equipment factory at Gladstone.

FFI said that the global green energy manufacturing centre (GEM) will be the first step in a series of projects. The GEM will be delivered in specialist production lines according to the requirements of FFI and its customers, including the manufacture of wind turbines, long-range electric cabling, solar photovoltaic cells, electrolysers and associated infrastructure.

Subject to customer demand, the total investment could be up to AU$1 billion, or more, as orders firm for electrolysers and other green industry equipment. The initial electrolyser investment is expected to be up to AU$114 million, with the first electrolysers scheduled for production in early 2023.

Another announcement that could be affecting the Fortescue share price was the announcement that FFI will become the largest supplier of green hydrogen to the United Kingdom after signing a multi-billion-pound deal with construction giant J C Bamford Excavators (JCB) and Ryze Hydrogen (Ryze).

Fortescue Future Industries said JCB and Ryze will purchase 10% of FFI's global green hydrogen production. FFI's green hydrogen production is expected to grow to 15 million tonnes of green hydrogen per year by 2030 and then to 50 million tonnes per year in the following decade.

Motley Fool contributor Tristan Harrison owns Fortescue Metals Group Limited. 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 recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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