How Analysts Factor Rio Tinto’s Earnings for 2017 and Beyond


Sep. 18 2017, Updated 9:09 a.m. ET

Factors affecting Rio Tinto’s estimates

Rio Tinto’s (RIO) (TRQ) stock has been hitting 52-week-high levels since July. It is currently trading close to $50. The strength in iron ore prices and other commodities have been propelling miners higher.

The company released its half-year results on August 2, 2017, which were slightly below market expectations. It also declared cash returns of $3.0 billion to shareholders. During 1H17, the company also reduced its net debt by $2.0 billion.

Please read Rio Tinto’s Unique Place in the Volatile Commodity Market for more details on its 1H17 results and its outlook.

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Revenue projections for Rio Tinto

Wall Street analysts are estimating revenues of $38.8 billion for Rio Tinto (RIO) in 2017, reflecting growth of 17.0% YoY (year-over-year). While its growth for 2017 seems impressive, the estimates for 2018 and 2019 are not that bullish. 

The sales estimates for 2018 and 2019 are $36.2 billion and $36.9 billion, respectively, implying growth of -6.7% and 1.9%, respectively. The most likely reason for this estimate is that analysts are expecting higher iron ore prices in 2017 compared to 2018 and 2019. 

Most of the market participants are expecting iron ore prices to weaken in the medium to long term on the back of increasing supplies and moderate demand growth.

Rio Tinto’s earnings estimates

While Rio Tinto’s revenues imply YoY growth of 17.0%, its EBITDA[1. earnings before interest, tax, depreciation, and amortization] implies still higher growth of 41% to $17.5 billion in 2017. This growth is anticipated mostly due to lower unit cost expectations and other cost reductions identified by the company. The margins are also expected to rise to 45.0% in 2017 from 36.7% in 2016.

Rio Tinto’s EBITDA margin was 36.7% in 2016, but the margin is expected to rise to 45% in 2017, according to analysts’ estimates.

Commodity prices (COMT)—especially iron ore prices—have shown resilience lately, which is helping Rio Tinto as well as peers such as BHP Billiton (BHP) and Vale (VALE).

In the next part, we’ll take a closer look at Vale’s recent rating changes.


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