Pilbara Minerals Ltd (ASX: PLS), a prominent player in the ASX lithium market, has endured significant volatility over the past year, with its share price plummeting nearly 40% as illustrated in recent charts. Brokers, including UBS, have expressed concerns about the company's valuation, particularly noting that the current share price implies a higher lithium price than what may be feasible in the near future.
Recent Performance and Investor Concerns
Since 20 May 2024, Pilbara Minerals' share price has continued to decline, marking a nearly 30% drop. Shareholders have been understandably cautious, questioning whether this downward trend will persist. However, recent developments suggest a potential turnaround may be on the horizon.
Broker Upgrade Signals Optimism
In a notable shift, JPMorgan (NYSE:JPM) analyst Al Harvey upgraded Pilbara Minerals' rating from underweight to neutral. This upgrade, reported by Australian media outlets, reflects a shift in sentiment among analysts towards a more neutral stance on the company's prospects. JPMorgan's 12-month price target for Pilbara Minerals stands at AU$2.95, indicating that they believe the share price may have stabilized around its current levels.
Analyst Ratings Overview
According to Factset data, analysts' opinions on Pilbara Minerals are divided: seven analysts rate it as a buy, six as neutral, and seven as sell. This mixed sentiment underscores the uncertainty in the market regarding the company's future performance.
Fiscal Year 2024 Outlook
Looking ahead to the fiscal year 2024, UBS remains cautious about the lithium market, citing ongoing downside risks due to strong supply from Africa and stagnant demand for plug-in hybrid electric vehicles (PHEVs). Despite these challenges, UBS notes that Pilbara Minerals' pricing assumptions still anticipate a rebound in lithium prices, although reaching long-term forecasts of US$1,400 per tonne may take time.
UBS forecasts for Pilbara Minerals in FY24 include revenue projections of AU$1.27 billion, with earnings before interest and tax (EBIT) reaching AU$525 million and net profit after tax (NPAT) at AU$359 million. Following significant investments in production expansion, the company's balance sheet could see a decline in net cash to approximately AU$942 million.
Market Dynamics and Future Prospects
With increasing global supply potentially capping lithium prices at current levels supported by marginal costs, Pilbara Minerals faces a challenging yet pivotal period. The company's ability to navigate these market dynamics and operational challenges will be critical in determining its future performance and investor sentiment.