Fortescue Ltd (ASX: FMG) shares have been having a tough time in 2024.

Since the start of the year, the mining giant's shares have lost approximately 15% of their value.

Unfortunately, these declines may not be over according to one leading broker, which is urging investors to sell the company's shares before they crash.

According to a note out of Goldman Sachs, its analysts were disappointed with the miner's quarterly update and feel it will now be a challenge to achieve guidance in FY 2024. The broker commented:

FMG reported a weaker-than-expected March Q with iron ore shipments of 43.3Mt, hematite realised price of 85% of Index, and unit costs of US$18.9/t all a miss vs. GSe and reflected wet weather in the Pilbara, recovery from a train derailment, and a recent softening of the low grade Fe market.

Iron ore shipments are now expected at the bottom end of the 192-197Mt range (GSe 189Mt) with a big June Q (>50Mt shipments) required to achieve the bottom end. We think this will be tough considering ore mined in the 3Q period was the lowest in 3 years, with mined ore inventory at low levels on our estimates.

In light of this, the broker has seen no reason to change its view on Fortescue shares. It continues to rate them as a sell with a $16.90 price target.

Based on where they trade today, this implies a potential downside of approximately 32% for investors over the next 12 months.

Goldman, like many brokers, believes that the market is severely overvaluing Fortescue shares. Particularly in comparison to peers such as BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO). It explains:

Relative valuation: the stock is trading at a premium to RIO & BHP on our estimates; 1.4x NAV vs. BHP at c. 0.9x NAV and RIO at 0.9x NAV, ~7.0x NTM EV/EBITDA (vs. BHP/RIO on c. 5.5x/4.5x), and c. 2% FCF vs. BHP/RIO on c. 6%/7%.

In addition, its analysts highlight the significant risks that lie ahead in relation to the miner's decarbonisation plans and the impact this could have on dividends. It adds:

The FMG site visit in October 2022 to the Pilbara & FY24 guidance highlighted ongoing elevated spend to maintain hematite group shipments at ~190Mtpa going forward. Combined with the ~US$8bn decarb program, we forecast FMG's capex will increase to ~US$4bn from FY25/26 (not including any unapproved green hydrogen/ammonia projects such as Norway, Kenya, Brazil).

We continue to think FMG is at an inflection point on capital allocation, and to fund the ambitious strategy, we assume the company reduces the dividend payout ratio from the current ~65% in 1H FY24 to ~50% from FY25 onwards (bottom end of the 50-80% guidance range), and increases gross gearing to >30% by FY27 (in-line with the company's target of 30-40%).