Rio Tinto Ltd (ASX: RIO) shares fell with the market on Wednesday following the release of the miner's fourth-quarter update.
The mining giant's shares ended the day 1.3% lower at $126.66. This means they are now down over 6.5% since the start of the month.
Is this a buying opportunity for investors? Let's find out.
Should you buy Rio Tinto shares?
According to a note out of Goldman Sachs, its analysts have retained their buy rating on Rio Tinto's with a slightly trimmed price target of $140.50.
Based on its current share price, this implies potential upside of almost 11% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividend yields of 5.1% in FY 2023 and 5.4% in FY 2024.
What did the broker say?
Goldman's analysts were pleased with the miner's update, noting that it came close to the top end of its annual iron ore shipments guidance range. It said:
RIO reported a broadly in-line 4Q23 result with iron ore shipments of 86.3Mt, +3% QoQ (vs. GSe 86.9Mt), taking full year Pilbara shipments to 332Mt vs guidance toward the top end of the 320-335Mt range.
With that in mind, the broker has laid out its expectations for next month's full year results release. It adds:
We forecast underlying earnings of US$11.7bn, down 12% YoY; underlying EBITDA of US$23.9bn (vs. Visible Alpha Consensus Data of US$24.5bn; prior to the 4Q23 result), net debt of US$2.9bn, and a final dividend of US$2.59/sh (based on a payout ratio of ~75%).
Finally, once again, Goldman highlights that Rio Tinto's shares are attractively priced compared to peers. It said:
We continue to rate RIO a Buy based on: Compelling relative valuation: trading at c. ~0.85x NAV (A$148.5/sh) vs. peers (BHP ~0.95x NAV and FMG ~1.3x NAV) and c. ~5.5x NTM EBITDA at GSe base case.
