Top broker hits FMG, RIO and BHP shares all with 'outperform' rating

Even with recent volatility in the iron ore market, Macquarie Wealth Management remains bullish on Australia’s big three iron ore miners.

Macquarie Wealth Management continues to like the outlook for Australia’s ‘big three’ iron ore miners, hitting Fortescue Metals Group Ltd (ASX: FMG), BHP Billiton Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) all with outperform ratings.

What’s behind this bullish sentiment?

Though iron ore prices have fallen from their July peaks – prices have shown resilience in recent times – and currently sit around the $90 per tonne mark.

For example, while the Fortescue Metals Group Ltd share price dropped sharply in August – as iron ore prices plunged – the pure-player iron miner has seen its shares recover the most of any of the big three since then, rising 28%.

Indeed, as Macquarie notes: the supply-side disruption to the iron ore market caused from the Vale dam collapse earlier in 2019 looks to be mostly resolved – with only some uncertainty remaining.

Maybe more importantly however, is the fact that steel margins have risen significantly from their August lows – which, according to Macquarie is likely a strong driving force behind the latest rebound in iron ore prices.

Comparatively, when steel margins were previously at their current levels, iron ore prices hovered around $115 per tonne (June 2019).

Moreover, while China port stocks have increased in recent times, levels remain below previous highs, noted Macquarie.

The iron ore data doesn’t lie

In the September quarter and as implied by port data, Australia’s iron ore majors – BHP, Rio Tinto and FMG – saw shipment volume that mostly came ahead of Macquarie’s own consensus.

Here, data implied that both the Rio Tinto and BHP iron ore shipment volumes came in at 86.6 million tonnes and 69.7 million tonnes, respectively.

Comparatively, FMG undershot Macquarie’s estimates by around 5%, with data implying shipments of 40.4 million tonnes.

BHP, Rio Tinto and FMG share prices in focus

In line with some of the bullish indicators as discussed above, Macquarie has continued to favourably rate the outlook of Australia’s big three iron ore miners.

Macquarie placed an ‘outperform’ rating on BHP Billiton Ltd (ASX: BHP) and a share price target of A$41.00 on the miner. This represents a slight uptick on the mining behemoth’s last traded price of A$37.84 per share.

According to the Wall Street Journal, Macquarie’s bullishness stands in contrast to the general analyst consensus – which currently rates the stock a hold. Of the 16 analysts covering BHP: four rate it a buy while nine rate it a hold.

The investment bank also hit Rio Tinto Ltd (ASX: RIO) with an ‘outperform’ rating and a price target of A$114.00 per share.

Click here now to read our full coverage on Rio Tinto's 2019 half-year results.

Finally, like the other two iron ore miners, Fortescue Metals Group (ASX: FMG) has an ‘outperform’ rating from Macquarie and a share price target of A$10.60.

Such a price forecast, if hit, would imply potential upside of around 16.7%.

Fortescue Metals Group Ltd remains Macquarie’s favoured pure-play iron ore stock, given its strong cash flow position.

Iron ore prices are currently hovering around $94.03 per tonne.

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