Deutsche Bank Changes It Tune On Rio Tinto (RTP), Now Calls It A "Buy"

Shares of Rio Tinto (NYSE: RTP) have been decimated over the past few months, related to the massive commodity contraction and the pulled takeover bid from larger rival BHP (NYSE: BHP), but today Deutsche Bank is getting positive on the name. The firm upgraded the mining company to Buy and raised its price target, following yesterday's announcement from the company that it will hunker down in "cash preservation" mode for the next two years.

Yesterday, Rio Tinto announced plans to reduce debt by $10 billion by the end of 2009 and a reduction in its global headcount by 14,000. Rio Tinto also announced that capital expenditures to be reduced to sustaining levels in 2010, absent an improvement in expected commodity market conditions. Rio Tinto also announced announced that its 2008 dividend will be held at the 2007 level of $1.36, with no $0.20 lift in 2008 and 2009. Rio Tinto also expanded the scope of assets targeted for divestment including significant assets not previously highlighted for sale.

Deutsche Bank said equity holders may be happy that the company will likely remain a going concern, but disappointed that it will be in no-growth mode, falling behind its peers in key industry segments like iron ore. Deutsche said equity holders will have to wait for growth, but the valuation at current levels is attractive. They anticipate that some of the near-term share performance will also reflect tactical factors such as "short covering."

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