Value Play: Rio Tinto PLC

Rio Tinto plc (RTP) is cashing in on surging commodities to report record earnings. RTP trades at just 8.6x forward earnings.

Rio Tinto is one of the world’s mining giants. Headquartered in Britain, it has mines throughout the world with a heavy concentration in Australia and North America. Its products include aluminum, copper, diamonds, energy, gold, industrial minerals and, its biggest prize, iron ore.

The company’s products are used in nearly every country around the globe making it a player on the commodity stage.

Rio Tinto Reports Record First Half Earnings

On Aug 5, Rio Tinto reported first half results which saw earnings rise 125% to $5.8 billion from the first half of 2009.

Its not hard to see the impetus behind this great growth which is that commodities prices, across the board, are higher than during the darkest time of the recession.

The company also expanded at the same time, with $3 billion approved in the first half of 2010 for several projects including expansion of Pilbara iron ore, increased investment in Ivanhoe and the construction of Eagle/nickel/copper mine at Kennecott Utah Copper.

With commodities prices hitting, in some cases, record highs, it was able to reduce its net debt to $12 billion as of June 2010 from $18.9 billion at the end of 2009.

2010 Zacks Consensus Estimate Moves Higher

As we see for a lot of foreign companies, there aren’t many estimates for the quarters but there are for the full year.

There are 6 estimates for 2010 and 1 has moved higher in the last week. 2010 Zacks Consensus Estimate is up a penny in that time to $6.95 per share.

This is sharply higher from just 90 days ago when the consensus stood at $5.61. Rio Tinto has been optimistic about the second half of 2010 saying that customer demand remains strong.

Rio Tinto made just $3.49 per share last year so analysts are expecting the company to double its earnings in 2010. You can chalk it up to the commodities rally and growth in the emerging markets.

So far, analysts are a little more cautious about 2011. Earnings are still expected to grow, but just by 9.4%. One estimate has been cut in the last 7 days, pushing the consensus down by a penny to $7.61 per share.

Rio Tinto Is Much Cheaper Than Its Peers

Rio Tinto is trading well under its peers which are trading at 17.9x forward earnings.

Its price-to-sales ratio is 2.2 while its peers have P/S ratios of 3.5.

The company’s return on equity (ROE) is a solid 14.7% while its peers’ ROE is just 6.9%.

Rio Tinto rewards shareholders with a dividend of 1.5%. It is a Zacks #1 Rank (strong buy) stock.

RIO TINTO-ADR (RTP): Free Stock Analysis Report

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About Tracey Ryniec 60 Articles

Affiliation: Zacks Investment Research

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

Visit: Zacks Investment Research

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