This iron ore miner’s shares are having a good day…
The post Champion Iron (ASX:CIA) share price up 7% but could still go 28% higher appeared first on The Motley Fool Australia. –
The Champion Iron Ltd (ASX: CIA) share price has been a strong performer on Wednesday.
In afternoon trade, the iron ore producer’s shares are up 7% to $5.00.
Why is the Champion Iron share price rising?
There have been a couple of catalysts for the rise in the Champion Iron share price today.
One has been news that embattled Chinese property giant Evergrande will live to fight another day after revealing that it will make a bond repayment tomorrow.
This has given the whole market, but particularly iron ore miners, a big boost.
What else is lifting its shares?
Also giving the Champion Iron share price a lift is a broker note out of Citi this morning.
According to the note, the broker has upgraded the company’s shares to a buy rating with a price target of $6.40.
Based on the current Champion Iron share price, this implies potential upside of 28% over the next 12 months before dividends. This increases to ~34% if you include the 29 cents per share dividend Citi is forecasting in FY 2022.
What did the broker say?
Citi made the move on valuation grounds following a sharp pullback in the Champion Iron share price.
It explained: “While we acknowledge significant near-term risk to iron ore price forecasts, CY22/23 iron ore at $125/$80 per tonne provides a much greater level of confidence for earnings forecasts, particularly as China lead indicators stabilise.”
“Further, longer dated market concerns re large-scale iron ore exports from Guinea now look much less certain. Iron ore may hold at +$100 levels for longer than the market expects. We revisit our depreciation assumptions for CIA and expect $/t depreciation to increase from current $4.5/t to $6/t by CIA FY23 (March YE) on the back of Bloom Lake Phase II expansion.”
“We also roll our valuation year to FY24 (at 4.5x multiples) when we expect normalised US$80/t benchmark iron ore pricing plus expanded production. While this reduces our target price to A$6.4/shr, recent share underperformance presents enough upside to upgrade CIA to Buy from Neutral,” the broker concluded.
Should you invest $1,000 in Champion Iron right now?
Before you consider Champion Iron, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Champion Iron wasn’t one of them.
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*Returns as of August 16th 2021
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 Bruce Jackson.