Why is the Paladin Energy share price heading south?

Shares in Paladin Energy Ltd (ASX: PDN) were in the red on Friday following two broker downgrades, but there remains a wide range of opinions on the value of the company.

Opinion starting to turn

Broker Jeffries on Friday cut their price target on Paladin shares by 8.3% to $11, while Goldman Sachs went much further, downgrading the stock to a sell rating and setting a price target of $9.70, as reported by The Bull.

That report said that Goldman Sachs believed the shares were trading ahead of fundamentals despite the positive outlook for the uranium market.

Paladin shares were changing hands for $9.85 around noon on Friday, down 2.3% on the day. The shares are up 32.1% over a 12-month period.

Macquarie sees more value in the shares

The Macquarie analyst team disagrees with the assessments of the other two brokers, noting in a research report released in late May that Paladin shares were undervalued.

Macquarie said Paladin had successfully ramped up production at its Langer Heinrich mine in Namibia and was also making “real progress” on its Patterson Lake South approvals in Canada.

Paladin in mid-May reported that for the March quarter it had produced 1.29 million pounds of uranium at Langer Heinrich, up 5% from the previous quarter, “driven by strong processing plant performance”.

The Patterson Lake South Project had also had its environmental impact statement approved.

Chief executive Officer Paul Hemburrow said at the time:

Our Langer Heinrich Mine continues to perform strongly and activities at the site are in line with our commitment to complete the ramp-up to full operations by the end of the financial year. We were pleased to increase our production guidance for the full year as a result of the hard work and sustained effort of our team and key contractors to successfully mobilise the mining fleet, along with the improved feed grade and the delivery of high recovery rates from the processing plant. We were pleased to receive Environmental Approval for the PLS Project from the Saskatchewan Government and are now focused on progressing the next regulatory steps to obtain our construction license for this significant uranium development.

Macquarie said Paladin’s share price underperformance against NexGen Energy (ASX: NXG), Cameco, and ASX-listed Namibian project developers “seems unwarranted”.

Macquarie added:

We now see value in the shares, which imply a US$77/lb uranium price. We recognise downside risk to FY27 consensus production forecasts still exists into guidance, but investors are now being rewarded for taking this risk on, in our view.

Macquarie upgraded Paladin to outperform with a price target of $13.25.

Paladin will be added to the S&P/ASX 100 Index (ASX: XTO) next week. The company is valued at $4.53 billion.  

The post Why is the Paladin Energy share price heading south? appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.