On Feb 26, we issued an updated research report on premium basic materials company Rio Tinto plc RIO. Being one of the largest diversified resource firms in the world, the company locates, mines and processes various types of mineral resources across several continents. However, despite its successful global operations, Rio Tinto currently faces threats from various external headwinds.
Looming Concerns
The current macroeconomic situation is posing several challenges for the mining industry. Sluggish economic growth in several emerging markets, weakening demand from a major industrial goods consuming nation like China, uncertainties in financial markets and volatility in the energy markets are all weighing on the top- and bottom line performance of Rio Tinto. Moreover, dismal commodity pricing continues to affect Rio Tinto's top-line results. Market prices of certain major products offered by the company such as iron ore, bauxite and copper are gradually falling. Also, competitive threats from rivals expose the company to risks of market share loss and compel it to adopt price-cutting programs that have in turn affected its revenues.
Limited Scope for Growth
We anticipate the abovementioned negatives to affect the financial performance of this Zacks Rank #5 (Strong Sell) stock. However, certain tactical initiatives undertaken by the company might partially offset the impact of such adversities. Rio Tinto is strategically improving its liquidity over time for funding growth programs. The company is also preserving greater cash by lowering capital expenditure, introducing cost-reduction plans and releasing greater amount of working capital into its business.
Key Industry Picks
Better-ranked stocks in the same space include Capstone Mining Corp. CSFFF, UR-Energy Inc. URG and AK Steel Holding Corporation AKS. All the three stocks currently carry a Zacks Rank #2 (Buy).
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