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

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

RBC Capital Markets' Tyler Broda turned slightly less bullish on Rio Tinto plc (ADR) (NYSE: RIO) by downgrading the London-listed stock rating from Top Pick to Outperform with an unchanged 4,200p price target, which implies upside from Tuesday's opening price of 3,382.50p.

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.

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).

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Latest Ratings for RIO

Oct 2019UpgradesHoldBuy
Sep 2019UpgradesUnderperformNeutral
Aug 2019DowngradesBuyHold

View More Analyst Ratings for RIO
View the Latest Analyst Ratings

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