The IGO Ltd (ASX: IGO) share price has slipped 6% in Tuesday’s session and is $12.755 at the time of writing.
After climbing amid a global resources boom in 2022, the IGO share price has fallen from a high of $14.17 just five days ago.
Joining IGO is the S&P/ASX 300 Metals & Mining Index (ASX: XMM). It’s also slipped 5.35% in today’s session and 11% this past week. IGO is down 9% over the same period
Is the IGO share price cheap?
After the miner sweetened its takeover offer to $3.87 a share, up from an earlier $3.36, analysts at RBC Capital Markets noted they saw “strategic rationale” in the decision.
In a recent note, RBC Capital analyst Kaan Peker noted “there is strategic rationale with consolidating Western Australia nickel sulphide producers”.
Peker reckons the offer – that values Western Areas at nine times next year’s earnings before interest, tax and amortisation (EBITDA) projections – could be accretive for IGO’s own pre-tax earnings as early as FY22.
Meanwhile, analysts at JP Morgan recently retained their overweight rating on IGO and value the company at $17.40 per share.
“IGO [is] a one-stop stock for EV raw materials,” the broker mentioned in a recent note. “Our overweight rating reflects the upside relative to our DCF valuation, high earnings growth and growing FCF yield.”
Earlier, the broker had mentioned IGO was well-positioned to take on the Western Areas acquisition, finishing 1H FY22 with $570 million in cash on its balance sheet.
JP Morgan also took note of IGO’s latest earnings that showed capital expenditures (capex) guidance for FY22 is high at $250-$300 million. That’s more than three times what the broker was budgeting.
“Management called out a number of projects to enable further expansions, but the spend is not on the CGP3/4/5 expansions themselves,” the broker wrote on IGO’s capex guidance.
“[The Greenbushes mine] costs of $388/tonne included royalties of $146/tonne, which when backed out showed costs were steady [quarter-on-quarter].”
The consensus of analyst estimates values IGO at $13.25 a share, according to Bloomberg data. Judging from that valuation, and depending on one’s own valuation, IGO could be cheap with the pullback.
From the list of broker coverage, 53% rate it a buy whereas 30% say it’s a hold right now. Together, that’s 83% saying to either buy or hold onto IGO shares at present.
IGO share price snapshot
In the last 12 months, the IGO share price has climbed 77% and is up 11% for the year, even with this most recent pullback.
The company has a market capitalisation of $9.6 billion at the current share price.
The post Is the IGO share price cheap after dropping 9% in a week? appeared first on The Motley Fool Australia.
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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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