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On Friday, CLSA analysts updated their outlook on Rio Tinto (LON:RIO) Ltd. (NYSE:RIO:AU) (NYSE: RIO), lifting the mining giant’s price target from AUD128.00 to AUD130.00. The firm maintained its Outperform (2) rating on the stock. With a market capitalization of $103.5 billion and a P/E ratio of 9.6, InvestingPro analysis suggests Rio Tinto is currently trading below its Fair Value. The adjustment follows the company’s report of a softer calendar year 2024 performance compared to Visible Alpha consensus and ongoing inflationary pressures in the Pilbara region.
Despite these challenges, Rio Tinto has expressed confidence in achieving its midterm cost guidance of US$20 per ton through productivity gains. The company’s net debt for the calendar year 2024 came in at US$5.5 billion, marking a 9% increase over consensus estimates. Supporting CLSA’s view, InvestingPro data shows Rio Tinto maintains a healthy debt-to-equity ratio of 0.25 and an impressive Altman Z-Score of 7.44, indicating strong financial stability. CLSA highlighted Rio Tinto’s comparative balance sheet strength as a significant advantage over competitors like BHP, which has indicated it might reach the upper limit of its net debt target by the end of the fiscal year 2025.
CLSA analysts noted that Rio Tinto’s balance sheet robustness is expected to continue driving superior returns compared to BHP. This assessment is supported by the fact that Rio Tinto delivered a payout of approximately 64% for the December half, in contrast to BHP’s 50%, which is at the lower end of its payout policy. The company’s commitment to shareholder returns is evident in its impressive 5.49% dividend yield and 33-year track record of consecutive dividend payments, as highlighted by InvestingPro’s analysis.
The price target increase is a reflection of CLSA’s positive view on Rio Tinto’s commodity mix and balance sheet heading into 2025. With an overall Financial Health score of "GOOD" from InvestingPro, strong profitability metrics including a 30.15% gross margin, and eight additional ProTips available to subscribers, the analysts have adjusted their estimates accordingly, and their commentary underscores the belief that the mining company’s financial health will enable it to outperform its peers in the medium term.
In other recent news, Rio Tinto has reported its full-year 2024 earnings, which met expectations, and the company surprised investors with a consistent 60% dividend payout ratio. Citi analyst Ephrem Ravi has adjusted Rio Tinto’s price target to GBP54, down from GBP56, while maintaining a Neutral rating. The adjustment follows concerns over higher-than-expected cost guidance for iron ore and potential volume risks in Pilbara operations. In a significant development, Rio Tinto’s acquisition of Arcadium Lithium has received clearance from the Committee on Foreign Investment in the United States (CFIUS), marking a key step forward. Shareholders of Arcadium Lithium have approved the $6.7 billion sale to Rio Tinto, positioning the company as the third-largest lithium miner globally. However, the acquisition still faces legal challenges from some Arcadium shareholders. Additionally, BofA Securities has raised Rio Tinto’s price target to GBP78, following the approval of a $2.5 billion expansion of the Rincon lithium project in Argentina. This expansion aims to significantly increase Rio Tinto’s lithium production capabilities, with initial production expected to start in 2028. Lastly, Rio Tinto has announced a board reshuffle, with several directors stepping down as part of a strategic renewal process.
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