Rio Tinto Shares Cut to Underperform at RBC After Strong Rally

RBC Capital has downgraded Rio Tinto (LON: RIO) to Underperform from Sector Perform, arguing that a recent share price rally has left the mining giant’s stock fully valued with limited room for upside.

Analyst Ben Davis lifted the price target to 6,400 GBp, from 6,300 GBp, but said the stock now reflects a favorable set of operating conditions that had previously underpinned the bullish case for the company.

Rio Tinto shares currently trade at 8,072p, up 34.7% year to date. The stock declined 2.8% in Wednesday’s session.

In a research note to investors, Davis said Rio Tinto’s shares already price in “supportive” aluminum conditions, “resilient” Pilbara margins and successful execution across its major growth projects.

RBC remains constructive on copper and aluminum as commodities, but argued that much of the expected improvement in the company’s EBITDA and free cash flow is now captured in the current valuation.

The firm sees more room for negative surprise from current levels.

The downgrade reflects a shift in RBC’s risk-reward assessment rather than a deterioration in Rio Tinto’s underlying fundamentals.

The bank’s constructive view on the company’s key commodities remains intact, but the stock’s strong run this year has, in RBC’s view, moved the balance of risk to the downside.