Of the 15 analysts covering Rio Tinto (RIO), 47% gave it “buy” recommendations, 27% gave it “hold” recommendations, and 27% gave it “sell” recommendations. In comparison, BHP Billiton (BHP) and Vale (VALE) have received “buy” recommendations from 26% and 15% of analysts, respectively.
US-focused (DIA) iron ore miner Cliffs Natural Resources (CLF) has “buy” recommendations from 22% of the analysts covering its stock. The percentage of “buy” and “hold” ratings for Rio has remained almost unchanged since the start of the year.
Several analysts have revised their target prices for Rio in the last few months. HSBC initiated on Rio’s stock with a “buy” rating in November 2016. It has a target price of 33 British pounds on the stock.
Deutsche Bank has increased its target price for Rio from $42.20 to $42.40 while reiterating its “buy” recommendation on the stock.
Jefferies also raised its earnings per share (or EPS) estimate for Rio from $3.41 to $3.47 for 2017. The company has a “buy” rating and a target price of $41 on the stock.
Rio’s stock was upgraded to a “neutral” from a “sell” recommendation by Citigroup (C) on December 5, 2016. As we discussed in the last article about BHP Billiton, Citi is now more positive about the outlook for commodities going into 2017. While it believes that the 2016 iron ore price rally was more of a “fluke,” it’s increased its iron ore price estimate by 21.6% for 2017.
As long as the supply-demand balance isn’t restored in the commodities market with the exit of high-cost capacity, there will likely be pressure on cash flows. Rio intends to generate $5 billion in additional free cash flow in the next five years as it ramps up productivity.
Operating expenses and capital expenditure flexibility should position Rio well for challenging times. The company has a number of tier 1 assets in its portfolio. As commodity markets rebalance, Rio Tinto could outperform its diversified peers Anglo American (AAUKY) and Glencore (GLNCY).