Rio Downgraded to Underperform - Analyst Blog
January 23 2013 - 8:20AM
Zacks
On January 22, we downgraded metal
mining giant, Rio Tinto Plc. (RIO) to Underperform
based on the company’s huge write down of assets relating to its
coal and aluminium business.
Why the
Downgrade?
On January 17, the company
announced a possible impairment of assets to be charged in fiscal
2012. The write down includes roughly $3 billion for assets
relating to the Rio Tinto Coal Mozambique, whereas an exorbitant
amount of $10-$11 billion relates to the aluminium business of the
company. Along with this, Rio also expects additional smaller
write-downs in the quarter.
It is anticipated that the current
write down of assets will have a negative impact on the full year
2012 results as well. The company expects to announce results for
the full year on February 14, 2013. The Zacks Consensus Estimate
stands at $2.86.
With a Zacks Rank #3 (Hold) and
Zacks Earnings Expected Surprise Prediction (ESP) (Read: Zacks
Earnings ESP: A Better Method) of -10.84%, Rio is less likely to
beat earnings next quarter. Moreover, this stock has mostly seen
downward estimate revisions in the recent past. Estimates for year
2012 declined 0.2% to $5.59 per share over the past 90 days, while
that for fiscal 2013 declined by a much higher percentage of 5.9%
to $6.10, over a period of 90 days.
Rio also posted weak results for
the half year 2012 with sales of $25.3 billion, down 12.8% year
over year. Also, the earnings per share dropped 22% year over year
to $3.16 per share, for the half year 2012.
Cause for
Concern
The company operates in a highly
competitive industry, which is impacted by micro factors such as
price, quality and costs along with macro factors such as
government delays on permit issues and tax policies. Also, in a
scenario, where volatility in terms of demand and prices persists,
it is difficult for the company to sustain and grow its margins and
earnings.
Other Stocks to
Consider
While we remain bearish on Rio,
other companies that are worth considering are Impala
Platinum Holdings Ltd. (IMPUY), BHP Billiton
Plc. (BBL) and Denison Mines Corp. (DNN);
each holding a Zacks Rank #2 (Buy).
BILLITON ADR (BBL): Free Stock Analysis Report
DENISON MINES (DNN): Free Stock Analysis Report
(IMPUY): ETF Research Reports
RIO TINTO-ADR (RIO): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Impala Platinum (QX) (USOTC:IMPUY)
Historical Stock Chart
From Sep 2024 to Oct 2024
Impala Platinum (QX) (USOTC:IMPUY)
Historical Stock Chart
From Oct 2023 to Oct 2024