Citi initiated a 30-day bull catalyst trade on shares of Rio Tinto plc (NYSE:NYSE:) and Plains All American Pipeline (NASDAQ:PAA) on Monday, signaling potential near-term positive moves for both stocks. For Rio Tinto, the company expects it will report first-quarter 2024 production results after the UK market closes on April 16.
The analysis suggests that while iron ore, which contributes significantly to Rio Tinto’s profitability, could see a 2% decline in shipments year-on-year, this is expected alongside a seasonal decline in shipments for the first quarter. Furthermore, aluminum production across the value chain is also expected to be slightly weaker.
The expected decline in spot iron ore prices and production levels could lead to a low-to-mid-single-digit percentage decline in consensus estimates after financial analysts revise their projections following the results. This potential drop in consensus estimates is based on the next production report and its implications for Rio Tinto’s financial results, which will be reported at a later date.
Regarding Plains All American Pipeline, Citi opened a catalyst watch with the expectation that the company will provide an update on the recontracting of Cactus (NYSE:), potentially during the first quarter 2024 earnings release. Historically, the expected renegotiation for 2025 and beyond has been a cause for concern for investors, but clarity on the financial impact is expected to be welcomed.
Citi’s outlook has become more positive in recent quarters thanks to encouraging comments from management and a consistently tight market for Corpus Christi. The company estimates that the renegotiation could result in an EBITDA hit of approximately $125 million over two years.
However, from a free cash flow perspective, the impact is expected to be more than offset by reduced capital expenditure, volume growth and interest savings from debt repayment. These factors contribute to the positive sentiment around Plains All American Pipeline shares as the market awaits further details.
Insights on InvestingPro
As Rio Tinto (NYSE: RIO) nears 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 and mining sector. The company’s commitment to dividend payments, maintained for 33 consecutive years, combined with the ability of its cash flows to cover interest payments, provides an additional level of confidence to investors.
InvestingPro data reveals a solid market capitalization of $109.47 billion and a P/E ratio of 10.88 in the trailing twelve months of Q4 2023. Despite a slight decline in revenue of 2.72% in the same period, Rio Tinto’s gross profit margin remains robust at 32.01. %, underscoring the company’s ability to remain profitable, a trend that analysts expect to continue this year. For investors looking for additional insights and analysis, there are 6 more InvestingPro Tips for Rio Tinto, which can be accessed at https://www.investing.com/pro/RIO. Use the coupon code PRONEWS24 to get an extra 10% discount on the annual or biennial Pro and Pro+ subscription, unlocking even more valuable investment strategies.
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