Mineral Resources Limited (ASX: MIN) shares will be on watch this week when it releases its half year results on Wednesday.
Ahead of the release, let's take a look to see what the market is expecting from the mining and mining services company.
What is the market expecting from Mineral Resources?
Unfortunately for shareholders, the team at Goldman Sachs believes the market may be expecting too much from Mineral Resources during the first half.
According to a note this week, the broker has named Mineral Resources as one of four companies that could negatively surprise during earnings season.
Goldman is forecasting an earnings before interest, tax, and depreciation (EBITDA) result 5% below consensus estimates and a net profit after tax result a sizeable 16% lower than estimates.
Why could Mineral Resources fall short of expectations?
The broker believes this earnings miss will be driven largely by higher than expected cost and freight (CFR) costs and margin pressures from labour shortages.
Goldman explained: "GSe -5%/-16% below VA consensus 1H FY22 EBITDA/NPAT respectively, likely on higher expected CFR costs across Commodities operations and margin/cost pressure in Mining Services, as a result of labour and resourcing tightness, potential supply chain constraints, and broad cost inflation being experienced by the mining industry (diesel, steel)."
And while its analysts are expecting stronger iron ore and lithium prices to support its performance, it isn't ultimately enough to offset the higher costs and lower volumes.
"As we noted from the recent quarterly, we lowered our FY22E EBITDA/EPS by -13%/-19%, largely driven by lowering forecast iron ore volumes (-10%) and increased CFR costs (+6%), and tighter Mining Services margins, offsetting the increase to commodity prices (Fe/Li)," it added.
Are Mineral Resources shares in the buy zone?
Goldman has a neutral rating and $53.50 price target on Mineral Resources' shares.
Elsewhere, the team at Citi also has a neutral rating and a $61.00 price target on its shares. Its analysts are forecasting a net profit after tax of $262.4 million for the half.
