What brokers are saying about the Fortescue share price in August

Here's what brokers are saying about Fortescue…

| More on:
Two brokers analysing stocks.

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 had a subdued start to the week.

The mining giant's shares have just closed the day a touch under 1% lower at $18.21.

That's despite rivals BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) both rising over 1%.

Why did the Fortescue share price underperform?

Today's weakness in the Fortescue share price appears to have been driven by a lukewarm response to the company's latest quarterly update.

For example, the team at Morgans responded by maintaining its hold rating and cutting the price target on the company's shares to $17.40.

Based on the current Fortescue share price, this implies potential downside of 4.5% for investors over the next 12 months.

Morgans commented:

Despite recent share price weakness, we believe FMG is still trading around fair value and will look for further volatility before considering our investment view. We do see potential for the current volatility to push FMG into oversold territory.

What else?

Analysts at Goldman Sachs are far more bearish. In response to Fortescue's update, the broker retained its sell rating and cut its price target to $12.70.

Based on the current Fortescue share price, this suggests significantly more downside risk of 30% over the next 12 months.

Goldman believes its shares are extremely overvalued when compared to BHP and Rio Tinto. It explained:

The stock is trading at a significant premium to BHP & RIO; c. 1.5x NAV vs. RIO & BHP at c. 0.8x & 1x NAV, c. 5.5x EBITDA (vs. BHP on 5x & RIO on c. 3.5x), and c. 5% FCF vs. BHP & RIO on c. 8-12%.

In addition. the broker has concerns over "widening of low grade 58% Fe product realisations" and "uncertainties around Fortescue Future Industries (FFI) diversification and Pilbara decarbonisation."

Motley Fool contributor James Mickleboro has no position 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 Scott Phillips.

More on Broker Notes

Woman in celebratory fist move looking at phone
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Broker Notes

These ASX 200 shares could rise 20% to almost 30%

Analysts are tipping these shares to deliver big returns over the next 12 months.

Read more »

Two people tired and resting after sports race.
Broker Notes

Fundie rates 2 ASX 200 stocks in short-term pain but with long-term gain potential

Blackwattle Investment Partners sees these 2 ASX 200 stocks as worthy of a buy and hold strategy.

Read more »

Two smiling work colleagues discuss an investment or business plan at their office.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

Guess which beaten down ASX share is rocketing 11% today

Why are investors buying this beaten down stock? Let's find out.

Read more »

Broker working with share prices on computers.
Broker Notes

These 3 ASX All Ords stocks just got sizeable broker upgrades

Top brokers expect strong performance from these ASX All Ords stocks.

Read more »

Man pointing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Morgans says these ASX 200 stocks can rise 30%

Big returns could be on the cards for buyers of these shares.

Read more »

Successful group of people applauding in a business meeting and looking very happy.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »