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Factors Driving Rio Tinto’s Earnings Estimates in 2019 and Beyond

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Dec. 28 2018, Updated 9:00 a.m. ET

Factors affecting Rio Tinto’s estimates

Rio Tinto (RIO) (TRQ) stock has returned -9.8% YTD (year-to-date) as of December 21. Similar to BHP Billiton (BHP) stock, it fell 2.6% in the first quarter, but as commodity prices firmed up, miners’ stocks picked up in April.

Rio Tinto’s stock price has lagged those of its peers, including 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 revenue to show flat growth over 2017, coming in at $40 billion. Most of the company’s production growth seems to be over for now, and revenue increases are expected to be the result of commodity prices. In 2019, analysts expect Rio Tinto’s revenue to fall 4.2% due to a lack of any clear future catalysts.

Rio Tinto’s earnings estimates

As with their revenue estimates, analysts expect weak EBITDA growth for Rio Tinto. Analysts expect Rio Tinto’s EBITDA to fall 2.2% in 2018 and another 11.7% 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 contract to 41.6% in 2020 from 46.4% in 2017.

While commodity prices (COMT)—especially iron ore prices—remained resilient for a large part of the year, they have started giving away gains for the last month or so, affecting miners such as Rio Tinto and its peers BHP Billiton and Vale (VALE) negatively. In the next article, we’ll look at recent rating changes for Vale.

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