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Investing.com - Australian mining giant Fortescue Metals Group Ltd. (ASX:FMG) was downgraded by CLSA from Hold to Underperform with a price target of AUD17.25, slightly reduced from AUD17.30 previously.
CLSA cited potential downside risk to free cash flow in the medium term as a key factor behind the rating change. The firm also noted that Fortescue’s greenhouse gas emissions continue to grow despite the company’s ambitious 2030 emission reduction targets.
The investment bank highlighted that Fortescue’s cumulative investment in decarbonization projects is lagging behind its 2023 guidance by 50% in nominal terms, with fiscal year 2027 emerging as a "critical year of delivery" for these initiatives.
CLSA pointed out that Fortescue is currently trading at a 30% premium compared to its long-run average multiple, while competitors BHP and Rio Tinto’s implied iron ore trading multiples trade at a 35% discount to Fortescue on a sum-of-the-parts basis.
The firm expects BHP and Rio Tinto to outperform Fortescue based on what it describes as a "more attractive commodity basket outlook and narrowing valuation gap."
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