Insights

Rio Tinto (ASX:RIO) share price on watch after broker upgrade

The Rio Tinto Limited (ASX: RIO) share price could be on the rise on Monday. This follows the release of…
The post Rio Tinto (ASX:RIO) share price on watch after broker upgrade appeared first on The Motley Fool Australia. –

The Rio Tinto Limited (ASX: RIO) share price could be on the rise on Monday.

This follows the release of a bullish broker note out of Goldman Sachs this morning in relation to the mining giant.

What did Goldman say about the Rio Tinto share price?

According to the note, the broker sees a lot of value in the Rio Tinto share price at the current level.

The note reveals that its analysts have upgraded the mining giant’s shares to a buy rating with a $144.40 price target. Based on the latest Rio Tinto share price, this implies potential upside of 10.5% excluding dividends.

But if you include dividends, this potential return stretches materially. Goldman estimates that Rio Tinto’s shares will provide fully franked yields of 14.1% in FY 2021, 13.9% in FY 2022, and then 11.2% in FY 2023.

Why is the broker bullish?

Goldman notes that Rio Tinto had a disappointing second quarter and fell short of its expectations for iron ore shipments. And while it suspects that it could yet underperform its guidance in FY 2021 due to operational challenges, this has been offset by the broker’s iron ore forecasts.

It explained: “Our commodities team now expects the iron ore market to return to surplus in 2023 only and have upgraded 2H21 Fe to US$195/t (US$117/t previously), and 2022 to US$160/t (US$95/t previously), and highlight ongoing steel mill preference for mid-high grade over low grade.”

Goldman believes this will lead to strong free cash flow generation and underpin generous dividend payments.

The broker commented: “Although we are calling for a c. US$60/t or 30% drop (from spot) in iron ore prices into 2022, we forecast record FCF/dividends in 2021 (18%/14% yield) & 2022 (16%/14%). RIO is not a growth story (we forecast -4% Cu Eq growth for RIO at the group level in 2021) it is a FCF story in our view.”

It also feels the Rio Tinto share price is undervalued compared to historical multiples at peak earnings.

Goldman explained: “On an EV/EBITDA basis, 1-2yr multiples for RIO look strong at 3-3.5x, below the 4-5x level in 2011 when earnings last peaked, yet RIO’s balance sheet and FCF look much stronger now.”

All in all, this could make it worth considering if you’re not averse to investing in the resources sector.

The post Rio Tinto (ASX:RIO) share price on watch after broker upgrade appeared first on The Motley Fool Australia.

Should you invest $1,000 in Rio Tinto right now?

Before you consider Rio Tinto, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Rio Tinto wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of May 24th 2021

More reading

5 things to watch on the ASX 200 on Monday

Why the BlueScope (ASX:BSL) share price could be set to jump higher
ASX 200 midday update: Rio Tinto update disappoints, Evolution sinks

Rio Tinto (ASX:RIO) share price lower on Q2 update
Rio Tinto (ASX:RIO) share price within 2% of all-time high

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!