Valuation Scorecard: Stock Rating C-Neutral (5/6/24)-Rio Tinto Group (RIO).

Rio Tinto Group’s common shares will need to reach $117 to achieve average annual stock market performance of 9.0% over the next 6 years. Rio Tinto Group’s stock price will need to reach $138 by 2029 to achieve upper quartile performance. What is the market’s view of Rio Tinto Group’s future operating performance as reflected in the current price of $70?

Executive Summary

• Key Rio Tinto Group characteristics: above average financial strength, instability, average profitability, and below average expected growth. Profitability is a big positive influence on Rio Tinto Group’s valuation while Growth is a big negative influence.
• Average valuation, above market shareholder returns. Current valuation levels are average relative to the Rio Tinto Group Peer Group. Recent market returns have outperformed the Rio Tinto Group Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Rio Tinto Group shares should reach a level of $155 by 2029 — an 19.2% per year total shareholder return. A 2029 stock price of $117 would reflect median performance and a price of $138 would be required to reach upper quartile performance.
• Rio Tinto Group’s achieved growth is slightly below average. Historical growth has been below average relative to the Rio Tinto Group Peer Group and forecasted growth is relatively average. Revenue Growth, EPS Growth, and Asset Growth have lagged. These factors have negatively affected market perceptions of Rio Tinto Group. Rio Tinto Group’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. Rio Tinto Group’s consensus growth expectations are in line with past growth.
• Profitability is slightly above average. The company has normal cash needs.
• Rio Tinto Group’s risk profile is favorable. Overall variability has been only average with only average revenue variability, very high E.P.S. variability, and very low stock price volatility. Financial Strength is only average and earnings’ expectations are below average. The debt/capital ratio has declined.

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