There could be a lot of pain ahead for Fortescue’s shares…
The post Fortescue share price sinks: Broker warns that it could fall a further 34% appeared first on The Motley Fool Australia. –
The Fortescue Metals Group Limited (ASX: FMG) share price is tumbling lower on Friday.
In morning trade, the iron ore giantâs shares are down over 4% to $20.63.
Will the Fortescue share price rebound?
Unfortunately for shareholders, one leading broker believes this could be the start of greater declines.
According to a note out of Goldman Sachs this morning, its analysts have reiterated their sell rating and cut their price target down to $13.50.
Based on the current Fortescue share price, this implies potential downside of over 34% for investors over the next 12 months.
Why is Goldman bearish?
The main reason for Goldmanâs bearish view on the Fortescue share price is its valuation.
For example, the broker estimates that Fortescue’s shares are trading at 1.71x forward net asset value (NAV). Whereas BHP is trading at 1.1x and Rio Tinto is trading at 0.9x.
It’s a similar story for its EV/EBITDA multiple. Goldman estimates that the Fortescue share price currently trades at 6.7x forward EV/EBITDA, whereas BHP is 4.5x and Rio Tinto is 3.9x.
Outside its valuation, the broker has concerns over the âwidening of low grade 58% Fe product realisations over the medium to long term due to high coking coal prices and high steel mill margins.”
It also sees âexecution and ramp-up risks on the Iron Bridge project and âuncertainties around Fortescue Future Industries (FFI) diversification and Pilbara decarbonisation.â
All in all, the broker believes investors would be better off buying BHP and Rio Tinto shares instead of Fortescue. It has buy ratings on both with price targets of $50.80 and $131.00, respectively.
The post Fortescue share price sinks: Broker warns that it could fall a further 34% appeared first on The Motley Fool Australia.
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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.