Iron Ore

3 brokers break down Fortescue's December quarter: Consensus says it's time to sell

Mon 30 Jan 23, 4:00pm (AEST)
A train of ore carts extending into the horizon in an Australian setting
Source: iStock

Key Points

  • Fortescue delivered its best ever December quarter and half year operating performance last Friday
  • The company is nearing a 200m tonne annualised rate for iron ore
  • Three broker notes remain Sell rated on Fortescue with an average target price of $16.78

Fortescue (ASX: FMG) shipped a record amount of iron ore in the December quarter but that wasn't enough to woo the likes of Macquarie, Citi and Morgan Stanley – all of which reaffirmed a Sell rating on Monday.

The headline about record shipments helped Fortescue shares rally 3.4% in early trade last Friday. But those gains fizzled quickly with the stock finishing the session up up just 0.04%.

Fortescue shares are down another -1.9% on Monday.

Analyst commentary

Morgan Stanley: Operationally strong

  • Second quarter shipments and production growth of 5% and 3% were better than estimates

  • Costs of US$17.17/wmt was 1% better than estimates

  • Target remains $14.85; Maintains Underweight

Citi: Strong December quarter but expensive vs peers

  • "Fortescue is an operational sweet spot with cash costs down in December quarter whereas peers' costs were up."

  • "That said, with the shares up 15% in the month, it now trades at ~1.3 times DCF vs. Rio Tinto at 1.0 times."

  • FY23 EBITDA estimates were upgraded by 8% to US$8.6bn given the strong quarter

  • In a bull case commodity price scenario, Citi has a $20.50 target price for Fortescue shares

  • Target remains $18.00; Maintains Sell

Macquarie: Operational performance solid but FFI drags

  • Iron ore mining, processing and shipments were a respective 4%, 3% and 1% higher than forecasts

  • Cash costs of US$17.17/wmt was 3% lower than forecasts, reflecting higher volumes, a stronger AUD and lower diesel prices

  • "Uncertainty over the funding requirements for FFI and the likely impact on dividends in the medium-term remain a key concern for FMG"

  • Target remains $17.50; Maintains Underperform

The average price target among the three brokers is $16.78 or a -25% decline from Monday's open of $22.45.

Fortescue Metals Group Ltd (ASX FMG) Share Price - Market Index

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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