Fortescue shares rise as Citi upgrades to 'buy'
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The news: Fortescue shares climbed on the ASX after Citi upgraded its rating on the mining giant, having slumped on Thursday as the benchmark iron ore price tumbled.
The numbers: Fortescue shares were up 3.9% to $17.47 by 1:25pm AEST, after closing 2.77% lower on Thursday as iron ore fell to its lowest level since 2022.
Citi analysts upgraded the miner to 'buy' and retained their $21 target price. It noted that Fortescue shares are down 38% in the last six months, compared to 12% and 14% declines by ASX peers Rio Tinto and BHP.
The context: Citi analysts said the upgrade was due to the "depth of the valuation discount" of Fortescue stock, rather than their "still cautious" iron ore outlook.
However, the analysts noted that despite remaining cautious on iron prices heading into a seasonally weaker second half, consensus iron ore pricing of USD100 ($150.97) per tonne in the 2025 calendar year "looks reasonable" given an expected reduction in high-cost production to offset new tonnes to the seaborne market.
At Citi's forecast FY25 iron ore price of USD103 per tonne, Fortescue's dividend yield is 5.1% at a 50% payout ratio would reduce to 3.2% at a USD90 per tonne price point.
The source: Citi research
