Industry our rating on the real estate sector is

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INDUSTRY Our rating on the Real Estate sector is Under-Weight, reflecting concerns about the impact on REITS of rising retail bankruptcies and store closings. Real Estate previously accounted for about 20% of the Financial sector; the new Real Estate sector accounts for about 2.7% of the S&P 500. We recommend that investors allocate at most 2% of diversified portfolios to this group. The sector is underperforming in 2018, with a loss of 6.1%. It also underperformed in 2017, with a gain of 7.2%. VALUATION KIM shares have traded between $13 and $21 over the last 52 weeks and are currently below the midpoint of this range. The shares are trading at 9.7-times our 2018 AFFO per share forecast, below the peer average of 12.5 and toward the low end of the five-year range of 9.5-21.6. We believe that this relatively low valuation is appropriate given continued challenges in the retail sector. We are also concerned about management’s plans for increased asset sales in 2018 and about the negative impact of rising interest rates on Kimco and other REITs. As such, our rating remains HOLD. On May 14, HOLD-rated KIM closed at $14.28, down $0.15. (Jacob Kilstein, CFA, 5/14/18)
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M ARKET D IGEST - 12 - RIO TINTO PLC (NYSE: RIO, $57.85) .................................................................................... BUY RIO: Reaffirming BUY and raising target to $63 * Rio Tinto has strengthened its operating performance and balance sheet by implementing cost-savings programs, selling noncore assets, and reducing capital spending. The company divested $2.7 billion of assets in 2017 and plans $5 billion of additional sales this year. * We are maintaining our 2018 earnings forecast of $4.90 per ADR and our 2019 estimate of $5.03. * RIO shares have outperformed over the past three months, rising 6.1% while the S&P 500 has gained 2.3%. They have also outperformed over the past year, gaining 38% while the index has advanced 13.4%. * Our revised target of $63 implies a multiple of 12.9-times our 2018 EPS estimate and a total potential return, including the dividend, of 13% from current levels. ANALYSIS INVESTMENT THESIS We are reiterating our BUY rating on Rio Tinto plc (NYSE: RIO), a leading international mining and metals company, with a revised target price of $63, raised from $61. Commodity prices have been rising over the past year, as the dollar’s upward trajectory has eased, which should boost the top line going forward. The company has also strengthened its operating performance and balance sheet by implementing cost-savings programs, selling noncore assets, and reducing capital spending. It also recently announced a new dividend policy, which should provide greater financial flexibility. The RIO ADRs are trading at a projected 2018 P/E of 11.7, toward the low end of the five-year historical range. Our target price of $63 implies a multiple of 12.9-times our 2018 earnings estimate and a total potential return, including the dividend, of 13% from current levels.
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