UBS maintains its Neutral rating on Rio Tinto but slashes the target to $104 from $126.
While the stock has generated a total shareholder return of 76% over the last 12 months led mainly by the strong iron ore price, UBS suggests iron ore is now approaching an inflection point. Thus, prices are at the risk of falling sharply during 2021-22.
The broker expects the miner’s free cash flow yield will fall to circa 7% at US$90/t and prefers South32 ((S32)) over Rio Tinto and BHP Group ((BHP)) due to its commodity mix and stock-specific catalysts.
Target price is $104.00.Current Price is $112.00. Difference: ($8.00) – (brackets indicate current price is over target). If RIO meets the UBS target it will return approximately -8% (excluding dividends, fees and charges – negative figures indicate an expected loss).