Rio Tinto Looks Poised To Capitalize On An Industry Turnaround

Rio Tinto plc (ADR) RIO has responded to weak commodity prices with cost control, asset sales and lower capex, and now appears poised to benefit from an industry turnabout, Argus’s John Eade said in a report. He maintained a Buy rating on the company, with a price target of $36.

Rio Tinto has witnessed tough business conditions over the past few years, with the sharp decline in commodity prices. Despite this, the company has strengthened its operating performance and balance sheet via cost-reduction programs, asset sales, and lowering capex.

Moreover, Rio Tinto recently announced a cut in its dividend, “which should provide greater financial flexibility,” analyst Eade mentioned.

Looking Beyond The Year

Although the pricing weakness would likely continue in the near term, 2017 is expected to bring improved industry fundamentals and stronger sales and earnings, Eade commented.

“Our recommended weighting for the Basic Materials sector is Over-Weight, based on stabilizing commodity prices and signs that the global economy will avoid recession,” the analyst wrote.

Rio Tinto’s ADRs are trading near the low end of their 10-year historical range, representing “an attractive valuation given prospects for a turnaround in the company’s business over the next year,” Eade added.

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