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Bull of the Day: Rio Tinto (RIO)

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Rio Tinto (RIO - Free Report) is a global industrial metal & mineral mining conglomerate headquartered in London. They employ about 55,000 people in more than 40 countries across six continents.

The miner has strong presence in Australia and North America, and significant businesses in Asia, Europe, Africa and South America. They have five product groups – Aluminum, Copper & Diamonds, Energy & Minerals, Iron Ore and Growth & Innovation.

They have benefited immensely from the recent rebound in commodity prices.  Additionally, the mining giant has also taken a number of measures of late to improve productivity, which have started bearing fruit now.

Impressive Results

The miner returned to profitability last year.  Earnings grew 12% in 2016, thanks mainly to the recovery in commodity prices and cost cutting. They generated strong operating cash flow of $8.5 billion and underlying earnings of $5.1 billion.

Consolidated sales for 2016 were $33.8 billion, down from $34.8 billion a year ago. The year-over-year decline was primarily driven by lower average commodity prices and reduced market premium for aluminum.

Returning Capital to Shareholders

With solid results, they announced a much higher-than-expected dividend to $1.70 per share and a $500 million of share buyback plan. During 2016, they returned $3.6 billion to shareholders, representing about 70% of underlying earnings.

Rising Estimates

Estimates have surged after results, sending the stock to a Zacks Rank #1. The Zacks Consensus Estimate for FY 2017 is now $4.95 per share, up from $3.75 per share, before the results.

Rio Tinto PLC Price, Consensus and EPS Surprise

Rio Tinto PLC Price, Consensus and EPS Surprise | Rio Tinto PLC Quote

The Bottom Line

The stock could be an excellent way to play the pick-up in global growth. China seems to have regained its appetite for commodities of late. In fact, many expect the Chinese government to launch more stimulus in order to support economic growth.

In addition to a top Zacks Rank, the stock also has a VGM Score of “A” and excellent industry (top 15%) and sector (top 19%) ranks. It currently trades at an attractive valuation of 8.43 times forward earnings.

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