Fortescue Metals Group’s Share Price Surges on Half Year Earnings

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At the time of writing, shares of Fortescue Metals Group Ltd [ASX:FMG] are up by 4.57% for the day, to $6.64 per share

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Why did Fortescue Metals Group shares do this?

Over the last few weeks, Fortescue Metals Group’s share price skyrocketed following the Brumadinho dam burst in Brazil ― the country’s worst mine disaster on record. As Vale, owner of the Brumadinho mine, is a competitor, this makes sense.

FMG’s share price showed tremendous strength ahead of today’s earnings announcement, which was extremely positive. Take a look at the slide below:

 

Fortescue Metals Group's share price

Source: Fortescue Metals Group

Fortescue Metals Group generated underlying earnings before interest, tax, depreciation and amortisation (EBTIDA) ― core earnings ― of $1.6 billion for the First Half of Financial Year 2019. The strong result sent the share price flying. The company now has a net debt (debt less cash) of roughly $3 billion, which is sharply lower than a few years ago. Take a look at Fortescue Metals Group’s share price chart below:

Fortescue Metals Group's share price
Fortescue Metals Group’s share price

Source: CommSec

Fortescue Metals Group shares have ripped higher since the mining incident in Brazil. It extended its run with the latest earnings report published today. That’s good news for shareholders. But will the share price run continue?

What now for Fortescue Metals Group?

Technically speaking, Fortescue Metals Group’s share price could peak soon. I believe it really comes down to the iron ore price ― the main contributor to Fortescue Metals Group’s earnings ― which has shot higher in recent weeks:

Fortescue Metals Group's share price

Source: tradingview.com

The iron ore price has been on a run since December and has surged past previous highs. I think that’s mostly why FMG’s share price has outperformed the market. That said, iron ore is now starting to pull back and that could put pressure on Fortescue Metals Group in the short-term. The market has price large expectations into the company now.

The bottom line: Fortescue Metals Group’s share price could reverse sharply in the days ahead. I think, considering the news is pretty much priced into the market, it may be a good time for shareholders to take some profits off the table. Focus on what happens with the iron ore price over the coming days. If it starts pulling back sharply, FMG’s share price could pull back into the $4 zone.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money

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