Investing.com -- Morgan Stanley initiated coverage of Rio Tinto’s (NYSE: RIO) American Depositary Receipts (ADRs) at Underweight with a $90 price target, set using the prevailing exchange rate, saying its fundamental views on the ADR are fully aligned with those on the underlying stock. The price target implies more than 14% downside from the last closing price.

The ADR initiation follows Morgan Stanley’s downgrade of Rio Tinto’s London-listed shares to Underweight from Equal-weight on July 8, when the bank cut its price target to £68.10 from £69.20. That call cited valuation concerns and broader commodity market headwinds ahead of the miner’s first-half earnings report.

Then, Morgan Stanley analysts said a strong run-up in the stock’s share price earlier in the year had significantly eroded its upside potential, tilting the risk-reward profile unfavorable relative to diversified mining peers. Analysts also pointed to softening iron ore demand dynamics and execution risks tied to complex, long-term project buildouts.

The bank flagged potential industry consolidation as an additional risk, noting regulatory and governance hurdles could cap near-term synergy gains from any such activity.

The July downgrade marked Morgan Stanley’s second cut on Rio Tinto this year, following a reduction to Equal-weight from Overweight in late January.

The Wall Street firm values Rio Tinto using a simple average of two methodologies: EV/EBITDA, based on average estimated 2026-27 EBITDA multiplied by the historical average EV/EBITDA multiple, and P/NAV. Analysts said the approach captures both the company’s shorter-term earnings power and its longer-term value.

The bank applied an EV/EBITDA multiple of 6.4x, in line with the historical average, noting that Rio Tinto’s business structure, balance sheet and portfolio mix have not materially changed. It applied a 1.0x multiple to its net present value estimate, based on a blended weighted average cost of capital of roughly 8.9%.