First State: some global resources earnings underestimated by 100%

First State’s global resources team says analysts are significantly underestimating earnings for the sector.

The team expects a widespread re-rating of mining stocks as analysts’ predictions catch up with commodity prices.

Manager Joanne Warner says: “As the spot price has been consistently higher than the forecast, analysts have had to continually upgrade their earnings to keep up with what was actually going on in the companies.”

Analyst Renzo Casarotto says, in some cases, analysts are underestimating earnings by as much as 100%.

“As an example, if you look at Rio Tinto for this year, at the current spot price its earnings would be £6, but the earnings forecasts are £2.91, which would result in earnings fro Rio doubling,” he says.  “We think analysts will catch up and re-price the stocks, which will then benefit from that earnings momentum.”

Warner is due to take over as First State’s head of global resources in June when David Whitten leaves.