On Friday, BMO Capital Markets adjusted its outlook on Piedmont Lithium (NASDAQ:PLL), increasing the price target to $14.00, up from the previous $9.50, while retaining a Market Perform rating on the stock. With the stock currently trading at $12.65 and a market cap of $225 million, InvestingPro analysis indicates the company is currently undervalued based on its proprietary Fair Value model.
The adjustment follows the announcement of a merger between Piedmont Lithium and Sayona Mining, which BMO views favorably. According to the analyst, the merger simplifies the ownership and offtake structure of North American Lithium (NAL), facilitates potential expansion at NAL, and forms a larger company with current production capabilities and growth prospects.
The merged entity is expected to benefit from a variety of assets, including the advanced-stage Ewoyaa project, the large-scale Moblan project, and the integrated Carolina lithium project. The analyst noted that the pro forma ownership structure of the new company would be approximately 50% Piedmont Lithium and 50% Sayona Mining.
The rationale behind the increase in the price target to $14.00 is based on applying a 0.50x multiple to the modelled net asset value (NAV) of the combined company, referred to as MergeCo. This reflects the potential that the merger has to unlock value and provide a clearer path towards growth for Piedmont Lithium.
The merger is seen as a strategic move that could enhance Piedmont Lithium's position in the lithium market, which is crucial for the production of electric vehicle batteries. The combined company, with its diversified asset portfolio, aims to capitalize on the growing demand for lithium as the global shift towards electric vehicles continues. InvestingPro data reveals the company maintains a healthy current ratio of 1.99 and trades at a modest Price/Book ratio of 0.8, though it faces challenges with a -31% revenue decline in the last twelve months.
BMO's updated price target suggests a level of cautious optimism about Piedmont Lithium's future performance, acknowledging the potential benefits of the merger while maintaining a neutral Market Perform stance on the stock.
For deeper insights, InvestingPro subscribers can access the comprehensive Pro Research Report, which provides detailed analysis of Piedmont Lithium's financial health, valuation metrics, and growth prospects among 1,400+ top US stocks.
"In other recent news, Piedmont Lithium reported mixed third-quarter results, with earnings per share (EPS) of $(0.42), exceeding both BMO Capital Markets' estimate and the FactSet consensus.
Despite a revenue drop from $47.1 million to $27.7 million due to lower lithium prices, the company managed to increase its shipped volume and reduce operating costs. In response to these developments, BMO Capital Markets adjusted its outlook on Piedmont Lithium, raising the stock's price target to $9.50 from the prior $9.00 while maintaining a Market Perform rating.
Piedmont Lithium also recently completed a private placement offering, resulting in aggregate gross proceeds of approximately US$27 million. This additional capital could potentially be used to expand its operations and further invest in its mining capacities. However, the company has not disclosed specific plans for the use of these funds.
In an effort to streamline operations, Piedmont Lithium reduced its workforce by 32% in October and revised its full-year 2024 shipment forecast downward to a range of 102-116kt. The company also secured a $25 million working capital facility and reported having $64 million in cash at the end of the quarter. Looking ahead, Piedmont Lithium is exploring financing options for the Ewoyaa project."
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