Rio Tinto Stock: Are Analysts Turning Away?


Sep. 6 2019, Updated 6:34 p.m. ET

Analysts’ ratings for Rio Tinto

Of the 14 analysts covering Rio Tinto (RIO) stock, 57.0% recommend a “buy,” 29.0% recommend a “hold,” and 14.0% recommend a “sell.” One year ago, 80.0% of analysts recommended a “buy.”

Of the analysts covering BHP Billiton (BHP) and Vale (VALE), 53.0% and 73.0% recommend a “buy,” respectively. Cleveland-Cliffs (CLF), which is mainly exposed to the US domestic market, has “buy” recommendations from 73.0% of analysts covering the stock. Analysts generally expect its premium to come down compared to its peers due to the lack of any significant catalysts.

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Upgrades and downgrades

On August 22, Liberum Capital upgraded Rio Tinto from “sell” to “hold.” On July 25, Royal Bank of Canada downgraded Rio Tinto stock from “sector perform” to “underperform.” RBC’s analyst had downgraded the stock in anticipation of the company’s disappointing first-half results.

According to Mining Journal, Broda stated, “At 8.2x EV/EBITDA on our revised 2019E forecasts and with a sharply weaker near-term iron ore outlook, we expect Rio Tinto will be unable to hold its current 64% premium to sector valuations.”

Broda added, “Cost inflation and growing potential for M&A are added challenges which will complicate the investment case for this recent perennial winner.” The analyst is more positive on Glencore (GLNCY).

HSBC upgraded Rio from “hold” to “buy” on June 21. The firm noted that while Rio Tinto lacks the diversity of other miners (XME), “this is offset by the inherent quality of its Pilbara iron ore assets and low-cost aluminium operations.”

Other rating changes

On June 7, J.P. Morgan (JPM) upgraded Rio Tinto from “neutral” to “overweight.” This upgrade indicated that its analysis of the next generation of iron ore and coal projects showed that strong prices are needed for new capacity to come online. J.P. Morgan analysts prefer Rio Tinto to BHP, as they believe the oil price rally that helped BHP outperform this year has run its course.

Barclays shifted its bullish position on Rio Tinto to BHP Billiton, as it believes that BHP’s underperformance over the last five years is about to end. Barclays also believes that BHP is in a better position to cope with “peak iron ore” than Rio or Vale (VALE).


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