Rio Tinto (RIO) Stock Recommendation

Rio Tinto (RIO) has a maintained Buy, Medium Risk (1M) stock recommendation and a $100 share price target from stock analyst Citigroup Investment Research (CIR). The stock analyst had attended RIO's annual investor seminar and they have reported that they remain positive on the mining company's 2007 outlook. Most projects remain on budget and on schedule but capital expenditure (capex) is expected to rise from US$4 billion in 2006 to US$5 billion in 2007. "Cost pressures continue to accelerate in iron ore driven by the increased use of contractors to meet continued strong demand. The continued tightness in the iron ore market and strong spot price creates significant upside risk to our -10% forecast for the current negotiations."

Rio Tinto also have a strong recommendation from Macquarie Research Equities who retain their Outperform rating for RIO with a 12-month share price target of $94.20. The stock analyst found the reason for Rio Tinto's positive outlook to be from the current economic environment – "where supply-constraint and low metal inventories continue to support rampant commodity markets and the cash generating capacity of the Group." The key messages that the analyst took away from the investor meeting: Rio Tinto's economists are forecasting global growth of greater than 4 percent in 2007. China remains key with total revenue increasing from 4 percent in 2000 to 15 percent this year. Rio Tinto is predicted to have 35% of CY07E earnings from Copper, 10 percent of CY07E from their energy business which includes coal and uranium. 41 percent of RIO's CY07E earnings from Iron Ore and 7 percent of CYo7e earnings from Aluminum. Since May 2005, Rio Tinto have returned US$4.4 billion of excess cash to shareholders in various forms including a US$1.5 billion special dividend and a mix of on anf off-market buybacks in both the London and Australian markets. There has also been a decision to extend the existing buyback programme by a further US$3 billion over 2006 and 2007. MRE predicts that RIO will generate US$23 billion of free cash flow in the years 2007-2010 and accumulate a whopping US$19 billion of cash on its balance sheet. "MRE prefers to focus on free cash flow yield (~8-9%) as it is a more reasonable metric on which to judge the company. Then consider the significant gearing capacity and it is logical that RIO has no shortage of scope to invest in value accretive investment opportunities or the ability to repatriate excess cash to shareholders (or both)."

Rio Tinto Limited is listed on the Australian Stock Exchange (ASX) under stock code RIO. You can view their investor website here. The company was listed on the ASX on 1 January, 1970. Rio Tinto is involved in the production of copper, gold, iron ore, coal, aluminium, borates, titanium dioxide and other minerals and metals. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. A previous RIO share tip and analysis from June 2006. Check your charts and good luck with your share trading!