Why Bell Potter just upgraded Fortescue shares

The team at Bell Potter has become more upbeat on Fortescue Ltd (ASX: FMG) shares this week.

But are the iron ore miner's shares in the buy zone? Let's find out what the broker is saying.

What is the broker saying?

Bell Potter notes that Fortescue's fourth-quarter update revealed production a touch short of expectations and costs that were largely in line with its estimates. It said:

FMG reported total iron ore shipments of 52.7Mt for the June 2026 quarter at C1 cash costs of US$19.37/wmt (vs BPe 53.8Mt at C1 US$19.39/wmt). Costs rose 6% QoQ, primarily reflecting higher diesel prices and higher AUD:USD exchange rate. Shipments were up 8% QoQ and contributed to record full-year shipments of 201.3Mt in FY26. FY26 C1 costs of US$18.74/wmt fell outside the FY26 guidance of US$17.50 – US$18.50/wmt. A stronger AUD is a key negative sensitivity for FMG.

The broker also highlights that Fortescue's costs are expected to increase in FY 2027, while shipments will be largely flat. It adds:

FMG provided FY27 guidance for shipments of 197-207Mt, including 11-14Mt from Iron Bridge (100% basis) at C1 cost for Pilbara Hematite of US$20.50-US$21.75/wmt. (+13% yoy vs FY26 actual). FY27 Metals capital expenditure is guided to US$3.7– US$4.7 billion (inclusive of decarbonisation US$900-US$1,300m) and compares with US$3.6 billion in FY26. Energy project CAPEX and OPEX guided to a combined US$450m. Overall this is higher than our prior forecasts (~US$4.1 billion).

Should you buy Fortescue shares?

Bell Potter has seen enough in the update to upgrade Fortescue shares from a sell rating.

However, not quite enough to recommend them as a buy. It has put a hold rating and trimmed price target of $17.40 (from $18.15) on the company's shares.

This is a touch below where the Fortescue share price currently trades. However, dividend yields of 5.7% and 3% are expected for FY 2026 and FY 2027, repectively.

Commenting on the update, the broker said:

EPS changes in this report are: FY26: -3%; FY27: -9% and FY28: -5%. FMG's core iron ore operations continue to perform very well and benefit from an elevated iron ore price. However, higher costs, broad input cost inflation, a subdued iron ore price outlook and potential impacts to price realisation all put pressure on our earnings and dividend forecasts. 

We lift our rating to Hold from Sell on recent share price depreciation but do not yet see the positive catalysts to re-enter the stock. Our NPVbased valuation is lowered 4%, to $17.40/sh.

The post Why Bell Potter just upgraded Fortescue shares appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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