On Thursday, Goldman Sachs initiated coverage on shares of Arcadium Lithium PLC (NYSE:ALTM) with a Neutral rating and a price target of $4.30. The firm highlighted the company's position as having the largest lithium resource base among its coverage. Arcadium Lithium is expected to see a significant increase in its lithium carbonate equivalent (LCE) production, with a forecast of approximately a threefold rise by the end of the calendar year 2030, reaching about 220 kilotons of LCE.
The analyst noted that while Arcadium has expanded its hydroxide capacity, particularly in China, this capacity is likely to be underutilized in the near term. Direct exposure to lithium chemicals is anticipated to contribute to higher earnings sensitivity and potential volatility in response to lithium pricing compared to peers focused solely on spodumene, a lithium mineral. This effect is believed to be partially mitigated by the company's contracts.
Despite the positive long-term outlook, Goldman Sachs pointed out the risks associated with project execution and cash flow for Arcadium Lithium. The company's specialty chemicals division is expected to support group margins during periods of price weakness, but free cash flow (FCF) is projected to remain negative until the calendar year 2029.
The growth expenditures are estimated to be roughly 25% of the company's current enterprise value (EV) per annum on average. There is also an expectation of increased legacy project capital expenditures, which may necessitate additional debt capacity to fund the project pipeline.
In other recent news, Arcadium Lithium PLC has been the focus of several analyst reports following its merger with Allkem and Livent (NYSE:DE000SH0TLQ3=TBEA). RBC Capital has initiated coverage on Arcadium Lithium with an Outperform rating and a price target of $4.00, citing the company's strong position in the lithium market and diversified approach to lithium and chemical production.
Contrastingly, Piper Sandler has reduced its price target for Arcadium Lithium to $3.75, maintaining an Underweight rating due to ongoing declines in lithium prices and a deteriorating supply/demand environment. Additionally, BMO Capital has also adjusted its outlook, reducing the stock's price target to $5.50 while maintaining a Market Perform rating, based on a reevaluation of anticipated realized lithium prices.
Argus, on the other hand, has initiated coverage on Arcadium Lithium, assigning a Buy rating and a price target of $6.25, influenced by the recent merger. They anticipate a reversal and gradual improvement in the downward trend of lithium prices. Lastly, Raymond James has upgraded its rating on Arcadium Lithium from Outperform to Strong Buy, setting a price target of $9.00. They express confidence in Arcadium's guidance suggesting 2024 as a year of cash flow neutrality and the realization of post-merger synergies.
InvestingPro Insights
As Goldman Sachs weighs in on Arcadium Lithium PLC (NYSE:ALTM), it's valuable to consider additional insights provided by InvestingPro. With a market capitalization of $3.43 billion and a compelling P/E ratio of 3.18, the company stands out in the financial landscape. Analysts have highlighted Arcadium Lithium's potential for sales growth in the current year, which aligns with Goldman Sachs' outlook on the company's expanding lithium production capabilities.
InvestingPro data shows a notable revenue growth of 3.04% in the last quarter, suggesting a positive trajectory that may interest investors. Additionally, the company's gross profit margin at 50.29% underscores its efficiency in generating profits from its sales. While the stock has demonstrated volatility, with significant price swings in recent weeks and a sharp decline over the past six months, analysts remain optimistic about the company's profitability in the upcoming year.
For those considering an investment in Arcadium Lithium, it's important to note that the company operates with a moderate level of debt and its liquid assets exceed short-term obligations, which provides a degree of financial flexibility. With these factors in mind, and to access further analysis, investors can explore additional InvestingPro Tips available on the platform. There are 11 additional tips for ALTM on InvestingPro, offering a deeper dive into the company's performance and prospects. For a more comprehensive investment strategy, use the promo code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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