On Wednesday, Piper Sandler affirmed its Underweight rating on shares of Arcadium Lithium PLC (NASDAQ:ALTM), maintaining a price target of $5.00. The firm's stance comes after a thorough review of Arcadium's first-quarter 2024 results, the company's updated guidance, shifts in lithium product pricing, and market outlook, supplemented by Piper Sandler's channel checks.
The decision to retain the Underweight rating and price target is influenced by expectations of the market dynamics over the next six to twelve months. The firm expressed concerns about the increasing supply of lithium, anticipating that the introduction of new supply within the next twelve to eighteen months will surpass demand growth. This imbalance is expected to create a surplus in the supply and demand (S/D) equation.
Piper Sandler indicated that the potential oversupply could hinder price initiatives in the lithium market. The analyst's outlook suggests that the spot market price may not support such initiatives due to the anticipated S/D loosening. This assessment reflects the firm's cautious view of the lithium market's short-term trajectory.
Arcadium Lithium PLC's stock rating and price target have been set with consideration of these market conditions. Piper Sandler's analysis suggests that the company's stock value could be impacted by the broader market trends and the expected shifts in lithium supply and demand.
The firm's maintained Underweight rating on Arcadium Lithium echoes its conservative outlook for the stock based on the market environment projected for the near future. InvestingPro Insights
In light of Piper Sandler's recent analysis of Arcadium Lithium PLC, providing additional context through InvestingPro data and tips can offer a more comprehensive view of the company's financial health and market potential. The market capitalization of Arcadium stands at $4.91 billion, with a Price/Earnings (P/E) ratio of 13.8, suggesting a potentially reasonable valuation compared to earnings. Notably, the company's P/E ratio for the last twelve months as of Q1 2024 is higher at 17.4, which may reflect market expectations for future earnings growth.
If a PE of 14x is considered a reasonable premium, what does that look for LTR's price or valuation?
LTR will remain in a loss position for 2024.
And below is an iteration of the Bell Potter model simulated for SC6 prices at $1200/ton and $1400/ton.
If the average price of SC6 that LTR receives for 2025 is $1200/t, it could end up with a modest $31mil NPAT assuming everything went well, and at the current closing price of $1.18, that gives a 2025 PE multiple of 93x. And it trades at 23x assuming average price is $1400/ton. Even if we are conservative in assuming that SC6 price would get to $1400, its PE multiple can only reach a reasonable 14x if its share price goes to 72c.
