On Monday, Citi initiated a 30-day upside catalyst call on shares of Rio Tinto (LON:RIO) plc (NYSE: NYSE:RIO) and Plains All American Pipeline (NASDAQ: PAA), signaling potential near-term positive movements for both stocks. For Rio Tinto, the firm anticipates the company will report its first quarter 2024 production results after the UK market closes on April 16.
The analysis suggests that while iron ore, a significant contributor to Rio Tinto's profitability, may see a 2% year-over-year decline in shipments, this is expected alongside a seasonal dip in shipments for the first quarter. Additionally, aluminum production across the value chain is also projected to be slightly weaker.
The expected decrease in iron ore spot prices and production levels could lead to a low to mid single-digit-percentage drop in consensus estimates after financial analysts revise their projections post-results. This potential decline in consensus estimates is based on the upcoming production report and its implications for Rio Tinto's financial outcomes, which will be reported at a later date.
Regarding Plains All American Pipeline, Citi has opened a catalyst watch with expectations that the company will provide an update on the recontracting of Cactus (NYSE:WHD), potentially during its first quarter 2024 earnings release. Historically, the recontracting scheduled for 2025 and beyond has been a point of concern for investors, but clarity on the financial impact is anticipated to be positively received.
Citi's outlook has grown more positive over recent quarters due to encouraging comments from management and a consistently tight market to Corpus Christi. The firm estimates that the recontracting may result in an EBITDA headwind of approximately $125 million over two years.
However, from a free cash flow perspective, the impact is expected to be more than compensated by reduced capital expenditures, volume growth, and interest savings from debt repayment. These factors contribute to the positive sentiment around Plains All American Pipeline's stock as the market awaits further details.
InvestingPro Insights
As Rio Tinto (NYSE: RIO) approaches its first quarter 2024 production report, investors are closely monitoring the company's performance metrics. With a significant dividend yield of 7.79% as of March 2024 and a reputation for low price volatility, Rio Tinto stands out as a stable investment in the Metals & Mining industry. The company's commitment to dividend payments, which have been maintained for 33 consecutive years, coupled with the capacity of its cash flows to cover interest payments, provides an additional layer of investor confidence.
InvestingPro Data reveals a solid market capitalization of $109.47 billion and a P/E ratio of 10.88 as of the last twelve months of Q4 2023. Despite a slight revenue decline of 2.72% in the same period, Rio Tinto's gross profit margin remains robust at 32.01%, underlining the company's ability to remain profitable, a trend analysts expect to continue this year. For investors seeking further insights and analysis, there are 6 additional InvestingPro Tips available for Rio Tinto, which can be accessed at https://www.investing.com/pro/RIO. Use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable investment strategies.
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