Investing.com -- JPMorgan (NYSE:JPM) has issued a warning that Anglo American 's (LON:AAL) stock is becoming ‘too expensive,’ noting that the mining giant’s share price is now trading at a 6% premium to its standalone fair value.
The current price of £23.10 per share already reflects an mergers and acquisitions premium, indicating that market expectations of a potential merger or acquisition are priced in.
This warning comes amid a broader trend within the mining sector, where merger and acquisitions activity is gaining momentum as companies look for consolidation opportunities rather than pursuing costly new projects.
Despite Anglo American’s shares trading higher, JPMorgan cautions that the stock might be overvalued, especially if merger talks with BHP do not materialize.
The brokerage flagged that BHP has already made a series of all-share offers for Anglo, including one at £31 per share, but these were rejected.
Since then, BHP's shares have underperformed Anglo’s by 9%, further raising concerns about the potential for value erosion if BHP pursues another deal.
The volatility in BHP's stock performance is now seen as a risk for its shareholders, especially since the company has expressed a focus on “value” following the failure of the 2024 deal.
With the mining sector currently focused on mergers and acquisitions, Anglo American's stock price is vulnerable to potential disappointment if the anticipated merger fails to materialize.
As BHP continues to prioritize prudent financial decisions, there’s a growing concern that market optimism surrounding a deal might not be grounded in reality, further increasing the risk for investors.
JPMorgan has placed Anglo American under a "negative catalyst watch" in anticipation of its 2024 year-end results, with expectations of significant impairments in its diamonds business.
Given the strong media buzz about potential merger and acquisitions activity among peer companies, Anglo’s stock price might see a short-term uptick.
However, JPMorgan warns that investors should be cautious, as the stock could be riding high on unrealistic expectations about the immediacy of new merger proposals.
Shares of the mining company were up 3.4% at 06:18 ET (11:18 GMT).