RIO Outlook to Clear Early '09

We are reiterating our Hold recommendation on Companhia Vale do Rio Doce, or CVRD (RIO). In spite of the challenging international economic environment for cyclical industries like mining, RIO reported very positive numbers for the second and third quarters of 2008.

The stock's current valuation already discounts a deep, worldwide economic recession. At this point, however, it is not clear how long this difficult economic environment will last.

At the beginning of 2009, negotiations between RIO and its Chinese customers will provide a clearer outlook for the company's short-term earnings. All considered, we believe the current valuation is very attractive, however it is time for a more cautious outlook on the mining sector, thus we are rating RIO as a Hold.

We expect the stock to trade at a discount to industry average in the short term. Accordingly, applying a P/E multiple of around 7x our 2008 EPS estimate, we arrive at a target price of $14.00 per share.

Read the full analyst report on RIO

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