Fortescue (ASX:FMG) Battery Haul Truck Deal Puts Valuation Back In Focus
Fortescue stock reacts to electric haul truck deal news
Interest in Fortescue (ASX:FMG) has picked up after news that XCMG will supply 150 to 200 battery electric haul trucks for its Pilbara operations, in line with Fortescue’s aim to cut fossil fuel use by 2030.
See our latest analysis for Fortescue.
Set against this electric haul truck agreement, Fortescue’s share price has eased, with a 30 day share price return down 4.32% and a 90 day share price return down 21.88%. The 5 year total shareholder return of 37.04% points to stronger longer term outcomes.
If this push into cleaner mining tech has your attention, it can be useful to see what other resource stocks are offering. Take a look at the 9 top copper producer stocks.
Fortescue now trades close to the average analyst price target, yet sits on a sizeable implied discount to some fair value estimates. Does that recent share price slide leave enough upside in the current valuation range?
Most Popular Narrative: 1% Overvalued
The most followed Fortescue narrative places fair value at about A$17.85, slightly below the last close at A$17.96, and ties that small gap to shifting growth and margin expectations that are being reworked as green spending and legal issues build into the story.
The market appears to be pricing in continued robust iron ore demand from China, driven by a belief in ongoing mega-infrastructure projects and resilient steel consumption. This assumes that elevated Chinese demand can offset global industry headwinds, should this prove optimistic, Fortescue's future revenue could disappoint.
Want to see what keeps that fair value only a touch below today’s price? The narrative leans on softer revenue, slimmer margins, and a richer future earnings multiple. The exact mix may surprise you.
Result: Fair Value of A$17.85 (ABOUT RIGHT)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Fortescue could still surprise the consensus if green energy projects scale faster than expected, or if higher grade ore projects support steadier margins.
Find out about the key risks to this Fortescue narrative.
Another View on Fortescue valuation
While the most popular Fortescue narrative sits close to the analyst fair value of A$17.85, the SWS DCF model points to a future cash flow value of about A$25.81, which is a sizeable gap to the A$17.96 share price. Which version of “fair” do you put more weight on?
Look into how the SWS DCF model arrives at its fair value.
Next Steps
With Fortescue sitting between competing fair value views and mixed sentiment, it helps to move quickly and weigh the evidence for yourself. To see both sides of the current debate, review the 2 key rewards and 2 important warning signs
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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