Shares of diversified mining giant Rio Tinto Group (RIO) have gained 24% over the past six months to close its last trading session at $69.61. The stock price found support from growing demand from the world’s largest consumer of iron ore and other metals, China, after relaxations of its zero-Covid policy. Moreover, the growing inclination toward clean energy and decarbonization worldwide drives the demand.
Given its sound fundamentals and promising growth prospects, RIO could be an ideal buy this month. Let’s discuss why.
With a $112.06 billion market capitalization, RIO, based in London, the United Kingdom, is a mining and metals company that explores, mines, and processes minerals. The company’s segments include Iron Ore; Aluminium; Copper; and Minerals.
Despite challenging market conditions, the company remained resilient because of the quality of its assets and its balance sheet strength. RIO delivered strong results in the fiscal year 2022 with underlying EBITDA of $26.30 billion, free cash flow of $9 billion, and underlying earnings of $13.30 billion, after taxes and government royalties of $8.40 billion.
RIO’s Chief Executive, Jakob Stausholm, said, “We are building a stronger Rio Tinto and delivering against our four objectives. Our operational performance has improved, as evidenced by a number of second half records being set at our Pilbara iron ore mine and rail system.”
“We are also investing for the future, doubling our stake in the Oyu Tolgoi copper-gold project in Mongolia through the acquisition of Turquoise Hill Resources, progressing the Rincon Lithium Project in Argentina and reaching milestone agreements that underpin the long-term success of our Pilbara iron ore business,” he added.
Here is what could influence RIO’s performance in the upcoming months:
Positive Recent Developments
On April 3, the company announced its partnership with the Government of Canada to invest up to C$737 million ($537 million) over eight years to decarbonize the BlueSmeltingTM demonstration facility, making it a center of excellence in critical minerals processing. It would process up to 40,000 tonnes of ilmenite annually. This investment should bode well for the company.
On March 31, RIO and First Quantum Minerals entered into a joint venture to unlock the development of Peru's La Granja copper project. The project has the potential to become a large, long-life operation and a significant new source of copper for the energy transition. Such initiatives should aid in the company’s expansion.
Furthermore, on February 23, the company approved a $40 million investment in the first phase of underground mining below the existing A21 open pit at its Diavik Diamond Mine. This decision is based on industry fundamentals, RIO’s ability to safely develop diamond mines in extreme conditions, and a successful track record in the global diamond industry.
Solid Growth Record
RIO’s revenue has grown at a CAGR of 8.8% over the last three years. Also, over the same period, its net income and EPS have increased at CAGRs of 15.7% and 16%, respectively, while its EBIT has grown at a 6.7% CAGR.
High Profitability
RIO’s trailing-12-month gross profit margin of 38.34% is 32.9% higher than the 28.85% industry average. Its trailing-12-month EBITDA margin of 40.24% is 111.5% higher than the 19.03% industry average. Also, RIO’s trailing-12-month levered FCF margin of 13.24% compares to the industry average of 4.63%.
Furthermore, the stock’s trailing-12-month cash from operations of $16.13 billion compares to the industry average of $385.60 million, and its trailing-12-month CAPEX/Sales of 12.15% is 108.2% higher than the industry average of 5.84%.
Attractive Dividend
RIO’s solid financial performance enables it to continue strengthening the business while paying attractive dividend payouts. The company pays a $4.92 per share dividend annually, which translates to a 7.32% yield on the current price level. The company’s dividend has grown at an 11% CAGR over the past five years, and its four-year average dividend yield is 10.64%.
POWR Ratings Show Promise
RIO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RIO has a B grade for Stability, consistent with its 24-month beta of 0.72. The stock’s higher-than-industry profitability justifies its Quality grade of B.
RIO is ranked #2 in the 35-stock Industrial - Metals industry. Click here to access RIO’s Value, Growth, Momentum, and Sentiment ratings.
View all the top stocks in the Industrial - Metals industry here.
Bottom Line
RIO’s growing investments in innovative technology and joint ventures position the company for significant growth. The company’s expansion of underground mining at the Diavik Diamond Mine further demonstrates its commitment to meeting the demand for high-value minerals and strengthening its position in the industry.
Given its robust financial performance, promising growth prospects, and reliable dividend payouts, investing in this commodity stock this month could be wise.
How Does Rio Tinto Group (RIO) Stack Up Against Its Peers?
RIO has an overall POWR Rating of A, equating to a Strong Buy. One can also explore other Industrial - Metals stocks that are decent buys, such as:
Vale S.A. ADR (VALE)
Anglo American PLC ADR (NGLOY)
Marubeni Corp. ADR (MARUY)
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RIO shares were trading at $69.69 per share on Wednesday afternoon, up $0.08 (+0.11%). Year-to-date, RIO has gained 1.05%, versus a 7.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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