After Tough 2022 Results, What’s Next for Rio Stock?

Shares of the diversified mining giant Rio Tinto (NYSE: RIO) That’s an increase of about 4% since the start of 2023, roughly in line with the S&P 500. The company recently reported earnings for Q4 and FY’22, with a 12% decline in full-year revenue to $55.6 billion, due to weaker price realization for iron ore (about 26% year-over-year). -year low) and sluggish shipments, amid weak demand from China. Rio’s adjusted earnings also declined nearly 38% year-over-year to $13.3 billion, partly due to higher energy prices. However, things may get better this year. The cost of iron ore, which is its largest single product, accounting for two-thirds Rio Tinto Revenue, has been in practice at a high level. Iron ore 62% Fe CFR futures have increased from around $79 a tonne in early November 2022 to around $111 in early January, while prices are currently rising to around $127 a tonne. The gains came as China eased some of its Covid-19 regulations, signaling a revival in demand for steel and steel-making inputs, given that the country is the world’s biggest consumer. Manufacturing activity has also picked up, with the Chinese manufacturing purchasing managers’ index (PMI) rising to 52.6 last month, the highest level since 2012, and up from nearly 50 in the previous month.

So is Rio stock still a buy? Rio Tinto stock is trading at approximately 9 times our estimated 2023 earnings for the company. While that’s a relatively attractive multiple, the outlook for Rio is a bit uncertain in the current environment. The US housing sector is slowing and there are also concerns about a broader recession in the US. The effective federal funds rate is currently around 4.6% after the Fed’s big rate hike last year, and it may be poised to move further. In view of the continued aggressive attitude of Furthermore, despite positive developments in China, it still remains a difficult market to gauge and years of massive growth are clearly behind it. Rio also cut its full-year dividend, announcing a $4.92 per share dividend for the year, down from its 2021 record payout of $10.40 per share. That said, there are positives for Rio as well. Rio’s balance sheet is also stronger than ever, with cash and cash equivalents at nearly $7 billion at the end of last quarter. There are some secular long-term trends that could help the stock as well. Investments in the renewable energy sector, including electric vehicles, charging infrastructure, and solar and wind power plants, are key markers supporting long-term demand for iron, aluminum, and copper. Rio is also looking to make a presence in mining lithium, which is used to make electric-vehicle batteries. We value Rio Tinto stock at approximately $75 per share, which is slightly ahead of the current market price. Our Interactive Dashboard On Rio Tinto’s valuation Historical trends in revenue, earnings, valuation multiple and forecast for FY2024 are highlighted.

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