Daily Deep Dive - Rio Tinto (RIO) Stock

Rio Tinto Plc logged a -1.0% change during today's morning session, and is now trading at a price of $62.73 per share.

Rio Tinto Group engages in exploring, mining, and processing mineral resources worldwide. Based in London, United Kingdom, the large-cap Basic Materials company has 54,000 full time employees. Rio Tinto Plc has offered a 7.7% dividend yield over the last 12 months.

Topline Growth Continues to Impress:

Tinto Rio's revenue has shown steady growth over the four-year period, increasing from $43,165 million in 2019 to $55,554 million in 2022. This represents a significant growth rate of approximately 28.7% over the period. The consistent revenue growth indicates a positive trajectory for the company's top-line performance.

The company's gross margins have improved steadily over the years, starting at 62.0% in 2019 and reaching 61.7% in 2022. This improvement suggests that the company has been able to effectively manage its production costs and maintain healthy profitability on its products or services.

Operating margins have also shown an upward trend, increasing from 35.3% in 2019 to 35.8% in 2022. This indicates that Tinto Rio has been able to control its operating expenses and improve its operational efficiency over the years.

Net margins have experienced significant growth, rising from 18.56% in 2019 to 22.36% in 2022. This improvement suggests that the company has been successful in managing its overall expenses, including interest expenses and depreciation, while increasing its profitability.

Net Income and EPS Show Significant Growth:

Tinto Rio's net income has shown substantial growth, nearly tripling from $8,010 million in 2019 to $21,094 million in 2022. This increase in net income demonstrates the company's ability to generate higher profits over the analyzed period.

Earnings per share (EPS) has also experienced significant growth, increasing from $4.88 in 2019 to $12.95 in 2022. This growth indicates that Tinto Rio has been able to effectively manage its shares and distribute its profits among shareholders.

Free cash flow has generally remained positive, indicating that Tinto Rio has been able to generate sufficient cash from its operations after accounting for capital expenditures. The free cash flow increased from $9,424 million in 2019 to $17,961 million in 2022, which indicates the company's ability to generate cash and potentially invest in growth opportunities.

Balance Sheet Weaknesses May Ward Off Cautious Investors

The company's net current assets have shown a negative trend, indicating that Tinto Rio has more current liabilities than current assets. This suggests a potential liquidity risk, as the company may face challenges in meeting its short-term obligations.

Long-term debt has decreased over the years, from $12,086 million in 2019 to $10,148 million in 2022. This reduction indicates that Tinto Rio has been actively managing its debt obligations and gradually reducing its long-term debt burden.

The net debt to EBITDA ratio has fluctuated over the years but remained within a reasonable range. It indicates the company's ability to repay its debt using its earnings before interest, taxes, depreciation, and amortization (EBITDA). The ratio ranged from 0.13 to 0.32, suggesting that Tinto Rio has a relatively manageable level of debt compared to its earnings.

Wider Gross Margins Than the Industry Average of 32.76%:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $43,165 $44,611 $63,495 $55,554
Gross Margins 62.0% 65.3% 70.8% 61.7%
Operating Margins 35.3% 39.8% 47.4% 35.8%
Net Margins 18.56% 21.9% 33.22% 22.36%
Net Income (MM) $8,010 $9,769 $21,094 $12,420
Net Interest Expense (MM) -638 -504 -528 -1,675
Net Interest Expense (MM) -$638 -$504 -$528 -$1,675
Depreciation & Amort. (MM) -$4,384 -$4,279 -$4,697 -$5,010
Earnings Per Share $4.88 $6.0 $12.95 $7.62
EPS Growth n/a 22.95% 115.83% -41.16%
Diluted Shares (MM) 1,642 1,629 1,629 1,622
Free Cash Flow (MM) $9,424 $9,686 $17,961 $9,384
Capital Expenditures (MM) -$5,488 -$6,189 -$7,384 -$6,750
Net Current Assets (MM) -$25,257 -$24,632 -$21,874 -$25,497
Current Ratio 1.56 1.8 1.93 1.64
Long Term Debt (MM) $12,086 $12,302 $11,356 $10,148
Net Debt / EBITDA 0.32 0.13 -0.01 0.19

Rio Tinto Plc Is Currently Undervalued:

Rio Tinto Plc has a trailing twelve month P/E ratio of 8.3, compared to an average of 10.03 for the Basic Materials sector. Based on its EPS guidance of $4.21, the company has a forward P/E ratio of 15.0. The -2.9% compound average growth rate of Rio Tinto Plc's historical and projected earnings per share yields a PEG ratio of -2.85. This indicates that its shares are overvalued.In contrast, the market is likely undervaluing Rio Tinto Plc in terms of its equity because its P/B ratio is 2.02 while the sector average is 2.08. The company's shares are currently trading -15.3% below their Graham number.

What Analysts Think:

The 4 analysts following Rio Tinto Plc have set target prices ranging from $67.9 to $92.0 per share, for an average of $77.22 with a buy rating. As of April 2023, the company is trading -18.1% away from its average target price, indicating that there is an analyst consensus of some upside potential. The largest shareholder is Fisher Asset Management, LLC, whose 1% stake in the company is worth $914,642,223.

Strong Performance Offset by Balance Sheet Woes:

Tinto Rio has demonstrated consistent revenue growth, improved margins, and significant increases in net income and EPS. The company has effectively managed its operating expenses and demonstrated its ability to generate positive free cash flow.

However, Tinto Rio faces challenges in terms of negative net current assets and potential liquidity risks. It is crucial for the company to address these issues to ensure its financial stability and ability to meet short-term obligations.

Overall, Tinto Rio's financial performance indicates positive growth and effective management. However, further analysis and consideration of industry-specific factors are necessary to fully evaluate the company's financial position and future prospects.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.