Could Fortescue shares fall a further 14% from here?

Bell Potter is tipping the mining giant's shares to continue sinking.

| More on:
A man holds his head in his hands, despairing at the bad result he's reading on his computer.

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

On Friday, we looked at what one leading broker was saying about Fortescue Ltd (ASX: FMG) shares. You can read about that here.

Unfortunately, it was feeling very bearish about the iron ore giant and was tipping its shares as a sell.

Let's now see what analysts at Bell Potter are saying about the miner.

What is it saying about Fortescue and its shares?

Firstly, let's take a look at what Bell Potter is saying about the mining giant's guidance for FY 2025.

It was disappointed with this guidance, noting that it has fallen short of expectations for both volumes and costs. The broker commented:

We identify a couple of factors in FY25 guidance that we believe have disappointed the market. First, guidance for iron ore shipments of 190-200Mt, at C1 cost of US$18.50 – US$19.75/wmt. Shipment guidance includes 5-9Mt from Iron Bridge (100 per cent basis). This compares with our prior forecast of 208Mt at C1 costs of US$18.30/wmt and represents a downgrade driven in part by a slower ramp-up at Iron Bridge and lower-than-expected hematite production.

Bell Potter also highlights that its capital expenditure guidance also disappointed the market. It adds:

We view the FY25 guidance as conservative, in light of the miss in FY24. Secondly, Energy division operating and capital expenditure has been maintained at US$700m and US$500m respectively. This is likely higher than market expectations given the recent re-structure. A significant US$700-US$900m has also been allocated to decarbonisation strategies for the iron ore division's US$3.2-US$3.8 billion total (up from US$2.9 billion in FY24).

Sell its shares

In light of the above, the broker has seen nothing to change its view that Fortescue shares are overvalued.

According to the note, Bell Potter has retained its sell rating and slashed its price target to $17.41 (from $20.63).

Based on the current Fortescue share price of $20.35, this implies potential downside of approximately 14% for investors.

This sell rating is based on its disappointing guidance and concerns over falling iron ore prices. It concludes:

EPS changes in this report are: FY24: -4%; FY25: -19% and FY26: -9%. Our NPV based valuation is lowered 16% to $17.41/sh. The weaker than expected guidance and higher CAPEX for FY25 combined with downside risks we see in the iron ore price outlook cause us to retain our Sell rating. Dividend yield as a price support remains a factor, but we expect this to fall away with a lower iron ore price.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 9 January 2025

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 Share Market News

Mergers & Acquisitions

Myer shares race higher on 'overwhelming support' for merger

The department store expects the merger to create a stronger business.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
52-Week Highs

4 ASX 200 shares smashing new 52-week highs even as the market sinks

Shrugging off today's sliding market, these ASX 200 stocks just hit new 52-week plus highs.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Coronado, Insignia, Netwealth, and Praemium shares are pushing higher today

These shares are having a strong session on Thursday. 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 Block, Core Lithium, Fortescue, and Vulcan shares are dropping today

These shares are out of form on Thursday. What's going on?

Read more »

Multiple ASX share investors take on one another in a tug of war in a high rise building.
Mergers & Acquisitions

Insignia Financial shares: When will the bidding war end?

Bidding action for the ASX 200 financial stock continues today.

Read more »

Three cute kids with mixed expressions poke their heads out from the back of a kombi.
Broker Notes

Top brokers just downgraded these ASX 200 shares

Is the tide turning for these names?

Read more »

A kid lies on the floor and stares up at the ceiling with headphones over his ears and a tablet next to him.
Opinions

1 ASX stock down 70% I'm considering buying

I think investors need to hear about this potentially exciting business.

Read more »

Happy couple holding red sold sticker inside their new apartment
Share Market News

Best ASX real estate stocks to buy now: REA Group vs. Domain

Can’t afford real estate? Try real estate stocks instead. 

Read more »