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On Monday, UBS analysts revised their stance on Fortescue Metals Group Ltd . (FMG:AU) (OTC: OTC:FSUGY), upgrading the stock from a Sell to a Neutral rating. Alongside the rating change, the firm adjusted the price target to AUD16.70, down from the previous target of AUD17.30. The reassessment by UBS came after Fortescue’s shares traded below their former price target. The stock currently trades near its 52-week low of $19.39, with a P/E ratio of 8, suggesting potential value opportunity. InvestingPro analysis indicates the stock is currently undervalued, with additional metrics available for subscribers.
The UBS analysts believe that concerns regarding the outlook for iron ore prices are exaggerated. Their forecasts suggest that iron ore prices are expected to stabilize between US$90 and US$100 per tonne over the next five years. Additionally, UBS analysts consider the worries about discounts on lower-grade iron ore to be overstated. However, they have slightly increased their discount rate for low-grade iron ore to 16%, up from 15%, to reflect the potential impact of steel production curtailments. Despite market concerns, Fortescue maintains strong financial health with a robust current ratio of 2.7 and moderate debt levels.
Due to these adjustments, UBS has revised its earnings per share (EPS) estimates for Fortescue downwards by 3-6% for the fiscal years 2025 to 2027. The modification of the EPS projections contributed to the reduced price target for Fortescue’s shares. The new price target of AUD16.70 represents a slight decrease from the previous target but aligns with UBS’s updated outlook for the company.
Fortescue Metals Group Ltd. is a global leader in the iron ore industry, and its stock performance is closely watched by investors. The decision by UBS to upgrade the rating to Neutral reflects a shift in their view of the company’s prospects, balancing their expectations for iron ore prices and industry discounts with the company’s current stock performance.
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