Morgan Stanley initiated coverage of Rio Tinto’s American Depositary Receipts (ADRs) with an underweight rating, citing stretched valuation and commodity market headwinds.
The bank set a price target of $90 per ADR, translating to more than 14% downside from the prior session’s close. The valuation was derived using a simple average of two methodologies: EV/EBITDA and P/NAV. For EV/EBITDA, Morgan Stanley applied a multiple of 6.4x to estimated 2026-27 EBITDA, while the P/NAV model used a 1.0x multiple based on a blended weighted average cost of capital of approximately 8.9%.
The underweight call follows a series of downgrades on Rio Tinto’s London-listed shares. On July 8, Morgan Stanley reduced its rating to underweight from equal-weight and trimmed its price target to £68.10 from £69.20. Earlier, in late January, the bank downgraded the stock to equal-weight from overweight, marking the second cut in 2025.
Analysts noted that Rio Tinto’s share price had surged earlier in the year, eroding upside potential and making the risk-reward profile less attractive compared with diversified mining peers. Softening iron ore demand dynamics and execution risks tied to long-term project buildouts were also flagged as concerns. Additionally, the bank highlighted potential industry consolidation as a risk, warning that regulatory and governance hurdles could limit near-term synergy gains from such activity.
