Broker says Allkem share price can rise 20% even if lithium prices fall

The Allkem Ltd (ASX: AKE) share price could be a top option for investors in the lithium industry right now.

That’s the view of analysts at Goldman Sachs, which have reiterated their bullish view on the lithium miner this morning.

What is Goldman saying about the Allkem share price?

According to the note, the broker continues to expect lithium prices to remain relatively solid for the first half of 2023 before weakening materially over the next 18 months. Goldman explained:

Our commodity team expect lithium prices through 1H23 to reflect the near-term tightness and lagging spodumene contract price pass-through (highlighted by PLS’ recent offtake repricing) before declining over 2H23, where we note 2024 futures have continued to pull back. While we see earnings support for the Australian stocks over 12-18 months on price lags, we expect lithium stock prices to reflect lithium commodity price movements as prices decline from record peaks.

However, due to its production growth plans, Goldman sees Allkem as well-positioned to navigate what lies ahead. It said:

Allkem has one of the best production outlooks in our lithium coverage, with broad-based growth optionality, second only to Mineral Resources on an LCE basis when including downstream hydroxide production on an equity basis. This drives our forecast for the company’s equity LCE production growth of >4x by FY27E, supporting earnings rebounding to near current record levels despite the declining lithium price environment.

Attractive valuation

In light of above and its attractive valuation at just 0.9x net asset value, the broker revealed that “Allkem is our preferred lithium exposure.”

As a result, this morning it has reiterated its buy rating and $15.20 price target on its shares.

Based on the current Allkem share price of $12.70, this implies potential upside of approximately 20% for investors over the next 12 months.

The post Broker says Allkem share price can rise 20% even if lithium prices fall appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Allkem. 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 Scott Phillips.

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