Critical Review: Rio Tinto (RIO) & Teck Resources (TECK)

Rio Tinto (NYSE: RIO) and Teck Resources (NYSE:TECK) are both large-cap basic materials companies, but which is the superior investment? We will contrast the two companies based on the strength of their earnings, profitability, dividends, institutional ownership, valuation, analyst recommendations and risk.

Valuation & Earnings

This table compares Rio Tinto and Teck Resources’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Rio Tinto $33.78 billion 2.24 $4.62 billion $3.43 16.34
Teck Resources $6.97 billion 2.41 $785.40 million $3.41 8.63

Rio Tinto has higher revenue and earnings than Teck Resources. Teck Resources is trading at a lower price-to-earnings ratio than Rio Tinto, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Rio Tinto and Teck Resources’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Rio Tinto N/A N/A N/A
Teck Resources 19.72% 15.16% 7.92%

Institutional and Insider Ownership

7.2% of Rio Tinto shares are owned by institutional investors. Comparatively, 54.3% of Teck Resources shares are owned by institutional investors. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Risk and Volatility

Rio Tinto has a beta of 1.01, indicating that its stock price is 1% more volatile than the S&P 500. Comparatively, Teck Resources has a beta of 1.31, indicating that its stock price is 31% more volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings and recommmendations for Rio Tinto and Teck Resources, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Rio Tinto 1 7 7 0 2.40
Teck Resources 1 2 12 1 2.81

Rio Tinto currently has a consensus target price of $54.79, suggesting a potential downside of 2.25%. Teck Resources has a consensus target price of $29.64, suggesting a potential upside of 0.72%. Given Teck Resources’ stronger consensus rating and higher probable upside, analysts clearly believe Teck Resources is more favorable than Rio Tinto.

Dividends

Rio Tinto pays an annual dividend of $2.37 per share and has a dividend yield of 4.2%. Teck Resources pays an annual dividend of $0.16 per share and has a dividend yield of 0.5%. Rio Tinto pays out 69.1% of its earnings in the form of a dividend. Teck Resources pays out 4.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Summary

Teck Resources beats Rio Tinto on 11 of the 16 factors compared between the two stocks.

Rio Tinto Company Profile

Rio Tinto plc is a mining and metals company. The Company’s business is finding, mining and processing mineral resources. The Company’s segments include Iron Ore, Aluminium, Copper & Diamonds, Energy & Minerals and Other Operations. The Company operates an iron ore business, supplying the global seaborne iron ore trade. Its Iron Ore product operations are located in the Pilbara region of Western Australia. The Aluminium business includes bauxite mines, alumina refineries and aluminum smelters. Its bauxite mines are located in Australia, Brazil and Guinea. The Copper & Diamonds segment has managed operations in Australia, Canada, Mongolia and the United States, and non-managed operations in Chile and Indonesia. The Energy & Minerals segment consists of mining, refining and marketing operations in over 10 countries, across six sectors: borates, coal, iron ore concentrate and pellets, salt, titanium dioxide and uranium.

Teck Resources Company Profile

Teck Resources Ltd is engaged in the business of exploring for, acquiring, developing and producing natural resources. The Company’s activities are organized into business units that are focused on steelmaking coal, copper, zinc and energy. It operates in five segments: steelmaking coal, copper, zinc, energy and corporate. The corporate segment includes all of its activities in commodities other than copper, coal, zinc and energy. Through its interests in mining and processing operations in Canada, the United States, Chile and Peru, the Company is a seaborne exporter of steelmaking coal, and producer of copper and mined zinc. It also produces lead, molybdenum, silver, and various specialty and other metals, chemicals and fertilizers. In addition, the Company owns interest in the Fort Hills oil sands project and interests in other assets in the Athabasca region of Alberta. It is engaged in advancing porphyry copper projects in Canada, Chile, Peru, the United States and Turkey.

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