Rio Tinto No Longer 'Top Pick' At RBC, But Still Viewed Favorably

One of the reasons to support a continued bullish stance can be traced to Chinese structural reforms that benefit Rio Tinto, the analyst stated. China's supply side reforms and increased focus on the environment benefits Rio's iron ore and aluminum exposure, which is expected to account for 79 percent of the company's 2017 EBITDA. Meanwhile, Rio Tinto successfully rebalanced its cash returns, balance sheet and growth requirements, which reaffirms the company's "conservative and sound position," Broda continued. In addition, investors shouldn't rule out the possibility of persistent special dividends and a total dividend yield of 8 percent (6.37 percent on the NYSE listed stock) will continue attracting investor attention moving forward. Related Links: Latest Rally In Chinese Commodity Prices Could Be Largely Rooted In Speculation Gordon Johnson: An Imminent End To An Epic Restock Suggests Iron Ore Prices May 'Snap' Back Toward Fundamentals

Finally, Rio Tinto's London-listed stock is trading at a 4.2x multiple on the analyst's 2018E EB/EBITDA which represents a discount to the company's long-term average of 6.5x. While a slowdown in the key Chinese property market could weigh on the stock's sentiment in the near-term it will merely result in the "iron ore fundamentals rerating pushed out to later in 2018" (see his track record here).