Are Rio Tinto shares a buy following its update?
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The stock of Rio Tinto Ltd (ASX: RIO) is slightly increasing today.
Currently, the shares of the prominent mining company have soared by 0.5% to reach a price of $116.52 as per the current writing.
It seems that brokers had a fairly positive response to the miner's quarterly update, which likely influenced this outcome.
Who Likes Rio Tinto Shares?
Goldman Sachs has reacted favorably to Rio Tinto's latest quarterly report.
Goldman has mentioned that certain segments of the company, such as refined copper, alumina, and iron ore pellets, are not performing at their best due to a variety of factors. As a result, the company's production projections for these areas have been adjusted downwards. However, the main operations of the company are still doing well.
Unexpected repairs and problems with equipment, as well as delays in scheduled maintenance and weather-related incidents, have caused a decrease in the projected production for 2023. Specifically, the lower end of the expected range for refined copper, alumina, Fe pellets, TiO2, and bauxite is anticipated. However, it is worth noting that the Pilbara iron ore shipments are now expected to reach the higher end of the predicted range of 320-335 million tons (with market analysts already forecasting the upper limit). Additionally, the underground copper mine at Oyu Tolgoi is progressing at a faster pace than initially anticipated.
After the update was made available, the broker revised its earnings projections for the first half of the year. They stated:
We predict that our underlying earnings for this year will be US$5.6 billion, which is a decrease of 35% compared to last year. Our projected underlying EBITDA is US$11.9 billion, slightly lower than the Visible Alpha Consensus Data of US$12.4 billion that was reported before the second quarter update. Our net debt is estimated to be US$3.3 billion, and we anticipate a dividend per share of US$1.73. This dividend is based on a total payout ratio of 50%, which falls within our ordinary policy range of 40-60%.
Are The Shares A Good Value?
Goldman Sachs has restated its recommendation to purchase Rio Tinto shares, but has slightly lowered the target price to $126.60. This suggests that investors could potentially experience an increase of 8.5% from the current stock value.
To make the offer even more enticing, the broker anticipates providing dividend earnings that have already had taxes paid on them, with a yield of 4.4% in the fiscal year of 2023, followed by 5.1% in the fiscal year of 2024. This extends the overall profit for investors to around 13% within the next year.
All things considered, this might make Rio Tinto an interesting option to consider if you're interested in investing in the mining industry.
