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On Thursday, Citi analyst Ephrem Ravi revised the price target for Rio Tinto (LON:RIO) Plc (NYSE:RIO:LN) (NYSE: RIO), decreasing it to GBP54.00 from the previous GBP56.00, while maintaining a Neutral rating on the stock. According to InvestingPro data, Rio Tinto currently trades at $64.11, with analysts setting targets between $72 and $95. The adjustment follows Rio Tinto’s full-year 2024 results, which Ravi noted were generally in line with expectations, including a positive dividend surprise as the company sustained its 60% payout ratio, supporting its impressive 33-year streak of consistent dividend payments.
The unchanged production guidance for 2025 was acknowledged, but concerns were raised regarding the higher-than-anticipated cost guidance for iron ore and potential volume risks for Pilbara operations due to the impact of cyclones. Consequently, Citi has revised its underlying EBITDA forecasts downward by approximately 5% for 2025 and 4% for 2026, with the Australian dollar and British pound price targets adjusted to A$130 and 54GBPX, respectively, from A$134 and 56GBPX. InvestingPro analysis shows Rio Tinto maintains a strong financial health score of "GOOD," with particularly robust profitability metrics and solid cash flow generation.
Despite the downward revision, Citi anticipates a lift in EBITDA to $25.5 billion by 2027, driven by volume increases and prices of aluminum and copper, which could help offset the lower iron ore prices. Current InvestingPro metrics show Rio Tinto trading at an attractive P/E ratio of 9.67x and offering a dividend yield of 5.62%. The company’s strong market position is supported by its moderate debt levels and robust cash flows, with InvestingPro analysis indicating the stock is currently undervalued based on its comprehensive Fair Value model.
The report concludes with a cautious outlook on the iron ore market, projecting a softening in prices in the second half of 2025. Rio Tinto’s EBITDA for the full year 2024 was heavily reliant on iron ore, which contributed 70% to the total. Despite market uncertainties, the company maintains strong fundamentals with a healthy current ratio of 1.63 and an impressive Altman Z-Score of 7.52, indicating solid financial stability. Citi maintains its Neutral stance on both the limited and public limited company shares of Rio Tinto, amid the forecasted changes in the commodities market. For deeper insights into Rio Tinto’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which includes detailed analysis of the company’s competitive position and future outlook.
In other recent news, Rio Tinto has announced a significant board reshuffle, with several directors, including Sam Laidlaw, Simon Henry, and Kaisa Hietala, set to step down in 2025. This move is part of a strategic board renewal process aimed at maintaining a balance of skills and experience within the company’s leadership. Additionally, Rio Tinto has received clearance from the Committee on Foreign Investment in the United States (CFIUS) for its proposed acquisition of Arcadium Lithium, marking a crucial step in the $6.7 billion deal. The acquisition, expected to be finalized by mid-2025, will make Rio Tinto the world’s third-largest lithium miner. However, the deal faces legal challenges from some Arcadium shareholders, who have filed lawsuits alleging misrepresentation and negligence.
In another development, Rio Tinto has approved a $2.5 billion expansion of its Rincon lithium project in Argentina, which has led BofA Securities to raise the company’s share target. The expansion aims to boost lithium production to 60,000 tonnes per annum by 2031. Furthermore, Rio Tinto is exploring the feasibility of extracting gallium at its alumina refinery in Saguenay, Quebec, with plans to build a demonstration plant supported by the Government of Quebec. This initiative is part of an R&D program to enhance the North American supply chain for strategic minerals.
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