Rio Tinto Ltd (ASX: RIO) shares were out of form on Thursday and dropped into the red.
The mining giant's shares fell 1.5% to $120.09 following the release of its full year results.
As a reminder, Rio Tinto posted a 1% decline in sales revenue to US$53.7 billion and a 2% decline in underlying EBITDA to US$23.3 billion.
The main drag on the company's profits was its Pilbara iron ore segment, which posted a 16.5% decline in underlying EBITDA to US$16.55 billion. This offset a 66% increase in Copper underlying EBITDA to US$4.05 billion.
This ultimately led to Rio Tinto declaring a fully franked final dividend of 225 US cents per share, which brought its total dividends per share to 402 US cents for FY 2024. This is down 8% on the prior corresponding period.
So, with its results out of the way, is now the perfect time to buy Rio Tinto shares? Let's see what analysts at Goldman Sachs are saying about the miner.
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Are Rio Tinto shares a buy?
Goldman Sachs has been running the rule over the results and was pleased with what it saw. It said:
RIO reported 2024 underlying EBITDA/NPAT of US$23.3bn/US$10.9bn compared to GSe at US$23.8bn/US$10.6b. EBITDA was down a modest 3% YoY with production growth and lower costs almost offsetting weaker commodity prices.
At the divisional level, Pilbara iron ore & aluminium smelting EBITDA beat our estimates due to lower than expected costs, this was offset by a slightly lower than expected results from copper and minerals. The final dividend of US225c was well ahead of our US192c forecast and was a ~70% payout (maintaining FY payout at 60%). Net debt of US$5.5bn was in-line with GSe but net operating cash flow of US$16bn beat our US$14.1bn estimate on working cap unwind and lower cash tax. Full year capex was US$9.6bn and in-line with guidance.
In response, the broker has retained its buy rating on Rio Tinto's shares with a trimmed price target of $143.70.
Based on the current Rio Tinto share price of $120.09, this implies potential upside of almost 20% for investors over the next 12 months.
Goldman is also forecasting a 5.6% dividend yield in FY 2025 (and FY 2026), which brings the total potential 12-month return beyond 25%. It adds:
Relative valuation: trading at c. ~0.7x NAV (A$163.4/sh) vs. peers (BHP ~0.8x NAV and FMG ~1.1x NAV) and c. ~5.5x NTM EBITDA at GSe base case, below the historical average of ~6-7x.
Attractive FCF and dividend yield + GS bullish copper and aluminium (EBITDA increasing to 45-50% by 2026): FCF/dividend yield of ~6% in 2025E and ~8%/~6% in 2026E driven by our bullish view on aluminium and copper (~45-50% of group EBITDA by 2026).
