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What Analysts Think of Iron Ore Miners with Prices Still Volatile

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Macquarie’s ratings

Macquarie upgraded its earnings estimates for BHP Billiton (BHP) and Rio Tinto (RIO). As a result, it upgraded BHP to “outperform” from “neutral.” It revised its estimates higher to reflect the strong demand and supply-side reforms in China.

Macquarie upgraded BHP to “outperform” from “neutral.” The broker feels that it offers a superior free cash flow upside to Rio Tinto (RIO). It also raised BHP’s target price to $24 from $20.

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Morgan Stanley

BHP is also the preferred exposure for Morgan Stanley (MS). The firm currently has a “buy” rating for the stock. It believes that due to a rebound in global commodity (COMT) prices, BHP could restart some of its stalled projects.

On August 9, 2016, Morgan Stanley upgraded Vale SA (VALE) stock from “underweight” to “equal weight” and raised the target price from $4.80 to $6.20. The firm believes that Vale’s balance sheet concerns might be alleviated by future iron ore production and asset sales.

Ratings from other firms

Rio Tinto was upgraded to “outperform” by analysts at RBC Capital Markets in August.

JPMorgan upgraded Vale SA (VALE) from “neutral” to “overweight” on September 12, 2016. It also increased the stock’s 12-month target price from $5 to $7. Stronger-than-expected iron ore prices were part of the reason that JPMorgan turned positive. JPMorgan also mentioned that Vale’s business is improving, and it expects the company to report positive free cash flow in 2017 and beyond. The firm said, “For a while we have been telling investors that Vale was a strong and interesting story but had a timing issue.”

In the next part of this series, we’ll look at the progression in iron ore shipments.

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