Fortescue Metals Group Limited (ASX:FMG): What Are The Future Prospects?

In June 2018, Fortescue Metals Group Limited (ASX:FMG) released its earnings update. Generally, the consensus outlook from analysts appear fairly confident, with earnings expected to grow by 15% in the upcoming year compared with the past 5-year average growth rate of -12%. With trailing-twelve-month net income at current levels of US$879m, we should see this rise to US$1.0b in 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for Fortescue Metals Group in the longer term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.

See our latest analysis for Fortescue Metals Group

Exciting times ahead?

The longer term view from the 16 analysts covering FMG is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To get an idea of the overall earnings growth trend for FMG, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.

ASX:FMG Future Profit January 8th 19
ASX:FMG Future Profit January 8th 19

By 2022, FMG’s earnings should reach US$1.1b, from current levels of US$879m, resulting in an annual growth rate of 4.8%. This leads to an EPS of $0.34 in the final year of projections relative to the current EPS of $0.28. Margins are currently sitting at 13%, which is expected to expand to 15% by 2022.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Fortescue Metals Group, I’ve put together three important factors you should further research:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Fortescue Metals Group worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Fortescue Metals Group is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Fortescue Metals Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.