Rio Tinto (ASX:RIO) share price sinks on broker downgrade

Opinion is divided on this mining giant's shares…

| More on:
A nervous ASX shares investor holding her hands to her face fearing a global recession may occur

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Rio Tinto Limited (ASX: RIO) share price was out of form on Monday and tumbled lower.

The mining giant's shares ended the day almost 3% lower at $120.05.

Nevertheless, longer term shareholders won't be too dismayed. The Rio Tinto share price is still up over 24% since this time last year.

Why did the Rio Tinto share price tumble today?

While broad market weakness will certainly have weighed on the Rio Tinto share price, a broker note out of UBS also appears to have done so as well.

According to the note, the broker has downgraded the company's shares from a neutral rating to a sell rating with a $104.00 price target.

Based on the current Rio Tinto share price, this implies potential downside of 13.5% over the next 12 months excluding dividends.

Why did UBS downgrade Rio Tinto?

The note reveals that UBS is expecting a sharp reduction in iron ore prices in the near future.

Its analysts believe that the steel making ingredient is approaching an inflection point due to a number of reasons. These include Chinese regulators trying to ease commodity prices, Brazilian iron ore supply increasing, and stockpiles at Chinese ports rising to above average levels.

UBS points out that Rio Tinto's iron ore operations are the main contributor to its overall earnings. As a result, should the iron ore price fall to US$90 a tonne over the next 12 months as UBS expects, it doesn't believe its dividends are sustainable and cuts will need to be made.

Bullish broker

Interestingly, not everyone is bearish on Rio Tinto.

This morning analysts at Macquarie retained their outperform rating and lifted their price target on its shares to $163.00. This price target implies potential upside of almost 36% over the next 12 months. Macquarie made the move after adjusting its commodity forecasts for the coming years.

Time will tell which broker made the right call.

James Mickleboro does not own any shares mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Miner with thumbs up at mine
Broker Notes

Up 55% this year, does Macquarie rate Gold Road Resources shares a buy, hold or sell?

Does this strong performing gold miner have more room to run?

Read more »

couple having a happy discussion with a banker
Healthcare Shares

Expert: 4 ASX healthcare stocks to buy ahead of reporting season

Could these ASX healthcare stocks be good additions to your portfolio?

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

Morgans names 3 ASX stocks to buy

The broker is feeling very positive on the investment opportunities here.

Read more »

Cheerful businessman with a mining hat on the table sitting back with his arms behind his head while looking at his laptop's screen.
Broker Notes

Macquarie tips 50% upside for this ASX 200 miner, and it's not BHP!

Unheralded miner poised to surge?

Read more »

A woman sits on sofa pondering a question.
Broker Notes

Guess which ASX All Ords media stock Macquarie expects to rise 17% over the next 12 months?

The broker is expecting big things from this media company.

Read more »

A couple stares at the tv in shock, one holding the remote up ready to press.
Broker Notes

These ASX 200 shares could rise 20% to 35%

Let's see why these shares are being tipped to rise strongly from where they trade.

Read more »

A woman presenting company news to investors looks back at the camera and smiles.
Broker Notes

Up 110% in 12 months: Why this ASX 200 stock can keep flying

Let's see what Bell Potter is saying about this high-flyer.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »