Iron ore miner, Fortescue Metals Group (FMG) and oil and gas producer, Woodside Energy Group (WDS) both released strong earnings results this week, but received contrasting market reactions, as their respective commodity prices continue running at inverse long term trajectories.
Both commodities have had their market fortunes significantly impacted by high profile global events over the last 12 to 18 months, namely the lingering effects of the COVID-19 pandemic, and the outbreak of war in Ukraine this year.
Geo-political forces shape iron ore and oil prices
Australian iron ore producers were riding high not so long ago, with China’s post COVID-19 demand soaring, and restricted supply from major Brazilian miners.
In May 2021, iron ore prices hit record highs, at above $US230 per tonne. These days it’s hovering around $US100 a tonne, now that Brazil has ramped up supply, and China is dialling down demand.
Brent crude has taken the opposite trajectory, due to the Ukraine conflict stymying global supply.
It’s risen from around $US65 a barrel in May 2021, jumped to about $US120 a barrel early this year, and is currently sitting at around $US100.
These macro trends have flipped fortunes for a number of ASX listed resources stocks, most recently typified by immediate market reactions to Fortescue and Woodside’s earning results.
Both released strong earnings results this week, but with contrasting impacts on their share prices.
FMG shares dip, despite strong profits
Fortescue released the company’s full year results for 2022, early this week.
The Western Australian based miner announced a $US6.19 billion ($A9 billion) profit, which was better than anticipated, but down 39.8% for the year due to the lower iron ore prices.
Fortescue’s share price dropped on the news, despite the result being the company’s second highest ever net profit after tax.
Is FMG overpriced?
The TipRanks Analyst Forecast tool reveals industry analysts are bearish about the company’s longer term future.
The iron ore miner has a Moderate Sell consensus, based on three Sell ratings, six Hold ratings and no Buy ratings.
An average Fortescue price forecast of $A17 implies a downside potential of around -10%.
Morgan Stanley analyst, Rahul Anand, who has an average return per rating of +11.50%, reiterated his Sell position on the U.S over-the-counter market, with a price target of $US10.13 and a downside sitting at around -21%
He has a success rating of 58% on previous Fortescue transactions, with 11 out of 19 profitable transactions. Despite this, Anand’s average return per rating on Fortescue is in negative territory, at around -19%.
Despite Fortescue’s strong operational performance announced in its results, the Australian miner’s fortunes are intrinsically linked with the broader market forces, also impacting other iron ore producers across the globe.
Iron ore futures dropped below $US100 a tonne this week, amid fresh worries over COVID-19 impacts and steel output restrictions in China.
Earning results see WDS shares surge
Like Fortescue, Woodside released strong earnings results that beat analyst forecasts. But unlike Fortescue, its share price surged upwards when news hit the markets.
The company’s half-year 2022 results, saw underlying net profit after tax of US$1.82 billion (A$2.6) an increase of more than 400% compared to the first half of 2021.
Analyst sentiment over the longer term is overwhelmingly positive too.
Is Woodside a buy or sell?
Woodside has a Moderate Buy consensus, based on four Buy ratings, two Hold ratings and no Sell ratings.
An average Woodside price forecast of $A34.38 implies a -0.43% downside potential.
UBS Analyst, Tom Allen, who has an average return per rating of +5.60%, reiterated his Buy position with a price target of A$33.65.
Woodside shareholders will be hoping Allen, who has been bullish on Woodside over the long term, is on the money again and his future predictions ring true.
Morgan Stanley analyst, Adam Martin, who has a success rate of around 80%, also reiterated his Buy position, with a price target of A$40.
While Woodside and Fortescue have both performed well from an operational standpoint, market values will continue to hinge on the unfolding geo-political impacts of COVID-19 and the war in Ukraine.