Factors that Analysts Expect to Drive Rio Tinto’s Earnings Growth



Factors affecting Rio Tinto’s estimates

On August 31, Rio Tinto (RIO)(TRQ) stock had returned -9.3% year-to-date. Similar to BHP Billiton (BHP) stock, it fell 2.6% in the first quarter. As commodity prices firmed up, the miners’ stocks picked up in April.

However, Rio Tinto’s stock price lagged peers such as BHP Billiton and Vale, primarily due to its lack of catalysts. Let’s look at the company’s revenue and earnings estimates.

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Revenue projections for Rio Tinto

In 2018, analysts expect Rio Tinto’s revenues to rise marginally, with a 0.4% YoY (year-over-year) increase to $40.2 billion. Most production growth for the company seems to be over for now, and revenue increases are expected to be due to commodity prices. In 2019, analysts expect Rio Tinto’s revenues to fall 1.1% due to a lack of any clear future catalysts.

Rio Tinto’s earnings estimates

Analysts’ estimates for Rio Tinto’s EBITDA aren’t that bullish, either. Analysts expect Rio Tinto’s EBITDA to fall 5.7% in 2018 and another 3.3% in 2019. Most of its cost-cutting efforts have already borne fruit, so analysts may not be expecting any cost-cutting gains in the medium term. Its EBITDA margin is expected to decline to 38.6% in 2020 from 46.4% in 2017.

Commodity prices (COMT)—especially iron ore prices—have rebounded lately. This rebound has helped Rio Tinto and peers BHP Billiton (BHP) and Vale (VALE). In the next article, we’ll look at recent rating changes for Vale.


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