The Rio Tinto Limited (ASX: RIO) share price underperformed on Thursday after investors gave the miner's half-year results a lukewarm response.
And while the mining giant's shares finished the day 0.75% higher at $97.70, its peers recorded much stronger gains.
For example, the S&P/ASX 200 Resources index charged 2.35% higher during the session.
Is the Rio Tinto share price still a buy?
According to a note out of Goldman Sachs, its analysts have retained their buy rating with a slightly trimmed price target of $122.90.
Based on the current Rio Tinto share price, this implies potential upside of almost 26% for investors over the next 12 months.
What did the broker say?
Goldman acknowledges that Rio Tinto disappointed on a number of items such as consensus EBITDA and dividend estimates during the first half.
Commenting on the dividend, the broker said:
The interim dividend of US$2.67/sh was lower than expected (50% payout vs. GSe 75% payout) with RIO painting a cautious outlook for global commodity demand, although the company believes China can introduce more easing measures in 2H.
Nevertheless, its analysts have seen enough to remain bullish. Particularly given its very attractive valuation.
Despite a weakening near term outlook for iron ore and base metals in 2H22, and concerns over future growth (Pilbara heritage and replacement mines, Simandou, Oyu Tolgoi, Resolution) and uncertainty over decarbonisation capex, we rate RIO a Buy.
This buy rating is based partly on its "compelling valuation." Goldman highlights:
Trading at c. 0.75x NAV (A$126.4/sh), c. 4.0x 2023E EBITDA at GSe base case, c. 4.2x at spot. Pricing in flat Fe of ~US$55/t (NAV = share price) or US$60-65/t at spot commodities to achieve the 25yr EV/EBITDA average of ~6.5x over the next few years.
The broker also highlights that the current Rio Tinto share price suggests potential for big dividends in the near term. It is forecasting a "FCF/dividend yield in 2022E (c. 10%/8% yield) & 2023E (c. 11%/8% yield)."
