Deutsche Bank downgrades Rio Tinto stock to Hold on iron ore concerns

Investing.com - Deutsche Bank (ETR:DBKGn) downgraded Rio Tinto (LON:RIO) Plc. (NYSE:RIO) from Buy to Hold and lowered its price target to GBP51.00 from GBP53.00 following the mining company’s first-half results. The mining giant, with a market capitalization of $95 billion and annual revenue of $54 billion, currently trades at an attractive P/E ratio of 9.2x. InvestingPro analysis suggests the stock is currently undervalued.

The downgrade comes despite Rio Tinto’s consistent performance, with Deutsche Bank noting the recent iron ore-led rebound in the company’s shares as a key factor in its rating change.

Deutsche Bank expects incoming CEO Simon Trott to focus initially on simplification, cost reductions, and potential smaller asset sales, which could make the company’s outlook "more interesting in the months ahead."

While Rio Tinto remains Deutsche Bank’s preferred iron ore major, the bank sees downside risks to iron ore prices in the coming months, influencing its more cautious stance on the stock.

The bank described Rio Tinto’s valuation multiples as "undemanding, but not compelling" due to elevated investment levels, with 2026 spot EV/EBITDA of approximately 5x and free cash flow yield of 6-7%.

In other recent news, Rio Tinto has entered into a binding agreement with Empresa Nacional de Minería (ENAMI) to acquire a 51% stake in the Salares Altoandinos lithium project in Chile’s Atacama region. The deal involves Rio Tinto providing up to $425 million in cash and non-cash contributions, including its Direct Lithium Extraction Technology. In a separate development, Rio Tinto has also formed a joint venture with Codelco to develop the Salar de Maricunga lithium project, also located in Chile’s Atacama region. Rio Tinto will invest $350 million for further studies and resource analysis, with an additional $500 million earmarked for construction costs upon project approval.

Meanwhile, Berenberg has downgraded Rio Tinto’s stock from Buy to Hold, citing concerns over iron ore prices and other market headwinds. The firm’s analysts have also adjusted the price target for Rio Tinto to GBP47.00 from GBP62.00. In Canada, Rio Tinto is investing CA$7.6 million to test ore sorting technology at its Lac Tio mine in Quebec. The project aims to enhance the sorting of ore based on titanium and scandium content, potentially reducing transportation costs and greenhouse gas emissions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.