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Earnings look ahead – Rio Tinto, Randgold Resources, Tullow Oil

A look at some key earnings next week.

Rio Tinto mining operation
Source: Bloomberg

Rio Tinto (full-year earnings 8 February)

The difficulties of the past few years appear to be behind Rio Tinto at last, with the firm expected to announce the first increase in annual earnings since 2013. Earnings per share are forecast to rise by 7.6% YoY, to £2.16 billion, while revenues are expected to fall 1.8% YoY to £27.5 billion. Iron ore is a vital part of Rio’s business, and the improvement here in both price and demand terms bodes well for Rio Tinto. A 4.3% dividend yield and a compelling forward PE of 11.8 means Rio is not yet overvalued, despite the remarkable rally in its share price.

Rio has seen its share price double in less than a year, but there seems little reason to think it will stop. The recent gap lower only knocks off the gains made since mid-January, and indeed those of a bullish disposition will be hoping for a further drop to make the risk-reward even more compelling. As long as the £30 level holds the uptrend is intact, with the share price having found steady support at the 50-day simple moving average over the past four months. 

Randgold Resources (full-year earnings 6 February)

As with most pure play gold miners, investing in Randgold is essentially a way of trading the gold price. However, ongoing increases in capacity plus a fairly healthy gold price mean the earnings outlook is still relatively encouraging. The miner has been determined to cut back on costs, and the absence of high debt levels also makes the valuation more attractive, even if the forward PE of 24 is above the five-year average of 21.8.

The share price found support in December at £55, and since then has pushed on to £69, but is finding this level difficult to break. A rally from here would head towards £75 and then £80, while a turn lower could find support at £60 and £57.20.

Tullow Oil (full-year earnings 8 February)

Like many an oil stock, Tullow came back from the brink in 2016. However, the problem for the firm is still its hefty debt pile has yet to disappear. Net debt at the end of 2016 was nearly $5 billion, and even with oil prices near $55 the firm will not be able to make a serious dent in its indebtedness. It is possible the firm could become a takeover target, but with Shell still digesting BG Group there are few potential acquirers left.

Recent earnings from Shell seem to have caused a new leg higher to begin in Tullow, and it does look as if the ongoing uptrend will continue, with the December highs at 340p now in sight. We would need to see a move below 240p to invalidate the outlook for a higher share price. 

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