Look out below! Broker tips Fortescue share price to fall 32%

The Fortescue Metals Group Limited (ASX: FMG) share price was on form last week and continued its ascent.

So much so, the iron ore miner’s shares are now up almost 50% since hitting a 52-week low at the end of October.

Investors have been bidding the Fortescue share price higher in response to a strong rebound by the iron ore price amid the easing of COVID restrictions in China.

Where next for the Fortescue share price?

One leading broker appears to believe that investors should be locking in their gains and heading to the exits before it’s too late.

According to a note out of Morgans, its analysts have reiterated their reduce rating with a trimmed price target of $14.50.

Based on the current Fortescue share price of $21.39, this implies potential downside of 32% for investors over the next 12 months.

What did the broker say?

Morgans believes that investors have got ahead of themselves when it comes to iron ore miners. It commented:

Over the last month iron ore price (+27%) and share prices for BHP (+16%), RIO (+20%) and FMG (+27%) have bounced hard off their November lows. We agree that the developments are likely to see improved demand conditions in early 2023, but the issue is how fast the equity market has moved to price in this recovery.

This is reflected in the current FCF yields on offer in our iron ore miners, which even at spot prices are a modest 6%/6%/9% for BHP/RIO/FMG respectively, which is well below their average levels over recent years.

Overall, the broker believes that investors should sit tight and wait for a better entry point. It concludes:

We can certainly see the potential green shoots for a recovery in demand drivers for steel, but it is also not hard to see a fresh bout of volatility before that recovery takes hold. We view current share prices on our large-cap iron ore miners as suggesting we have to ‘pay up front’ for that potential recovery, leaving us with lower conviction. As a result we downgrade our rating on BHP and RIO to HOLD (from ADD), while maintaining a REDUCE on FMG.

The post Look out below! Broker tips Fortescue share price to fall 32% appeared first on The Motley Fool Australia.

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More reading

• Why did ASX 200 iron ore shares like BHP have such a cracking Friday
• Will Fortescue’s green hydrogen plans really pay off for shareholders?
• Forecast for ASX 200 iron ore shares in 2023: bull vs bear
• Is this the beginning of a beautiful green hydrogen friendship between Fortescue and Rio Tinto?
• Dividend darling becomes disappointment: What happened to Fortescue shares?

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.

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