RBC Capital has turned negative on Rio Tinto PLC (LON:RIO), downgrading its rating to ‘underperform’ from ‘sector perform’ after cutting its price target following revisions to earnings forecasts.
The Canadian bank reduced its target for the FTSE 100-listed miner to 3,400p from 3,900p, with the stock currently changing hands at 4,161.5p, down 2.2% on Tuesday’s close.
READ: Rio Tinto’s strong iron ore production offset by more cost warnings
In a note to clients, RBC’s analysts said: “At 8.2x EV/EBITDA on our revised 2019E forecasts and with a sharply weaker near-term iron ore outlook, we expect Rio Tinto will be unable to hold its current 64% premium to sector valuations.”
They added: “Cost inflation and growing potential for M&A are added challenges which will complicate the investment case for this recent perennial winner.”
The analysts concluded: “A more challenging market could give Rio Tinto the opportunity to acquire world class assets, but this could also drive a period of digestion for the investment case.”