Shares of Rio Tinto plc (ADR) RIO came under significant pressure on Friday on Brexit news. Argus’ John Eade maintained a Buy rating for the company, with the price target at $36. The analyst commented that Rio Tinto’s long-term outlook was solid and the company appeared poised for an industry turnaround.
Rio Tinto has been facing tough business conditions over the past few years, driven by the sharp decline in commodity prices. While saying that the pricing weakness is likely to continue in the near term, analyst John Eade wrote, “…we look for improved industry fundamentals and stronger sales and earnings in 2017.”
Eade noted that Rio Tinto had strengthened its operating performance as well as its balance sheet on the back of cost-savings initiatives, asset sales and tightening capital spending. “It also recently announced a cut in its dividend, which should provide greater financial flexibility.”
Share Price Performance
Rio Tinto’s shares lost 8 percent on Friday on news of UK leaving the EU. The analyst pointed out, however, that the stock had been an outperformer over the past quarter, appreciating 3 percent versus a 0.2 percent gain in the S&P 500.
The shares are currently trading in the middle of their 10-year historical range. “We view this as an attractive valuation given prospects for a turnaround in the company’s business over the next year,” Eade stated.
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