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Citi bullish on SQM stock, cites 43% discount vs peers and long-term lithium trends

EditorEmilio Ghigini
Published 12/03/2024, 02:08 AM
SQM
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On Tuesday, Citi has adjusted its outlook on Sociedad Quimica y Minera (NYSE: SQM), a leading lithium producer, reducing its price target to $60 from the previous $64, while retaining a Buy rating on the stock. Currently trading at $39.84, SQM has seen its shares decline by over 33% year-to-date.

The adjustment reflects the anticipation of continued pressure on lithium prices through 2025, which influenced the reduction in the target price by 6%. According to InvestingPro data, the stock appears undervalued compared to its Fair Value estimate.

The decision to maintain a Buy rating is supported by several factors. Citi analysts highlight the robust growth in lithium demand anticipated for 2025, with battery demand expected to surge by approximately 30% year-over-year. Additionally, the firm notes SQM's increased production capabilities, as the company's lithium division is experiencing significant growth in volume sales.

InvestingPro data shows that SQM maintains a strong financial position with a current ratio of 2.94, indicating liquid assets well exceed short-term obligations, and has maintained dividend payments for 31 consecutive years.

Despite the optimism for demand and production, the revised price target takes into account the expected 55% year-over-year decrease in the company's EBITDA for 2024, with average lithium prices projected at $11,000 per ton.

However, for 2025, Citi foresees a 22% increase in EBITDA year-over-year, buoyed by higher volumes of lithium sales and a moderate improvement in prices, estimated at a 10% year-over-year increase.

Citi also points out that while earnings for SQM may continue to face challenges due to the persistently low lithium prices in 2025, the current price levels are not considered to be incentive prices. This suggests that the long-term trends are expected to remain stable, potentially minimizing the likelihood of downward earnings revisions in the following year.

The analysis concludes by stating that SQM's stock appears to be significantly undervalued by the market, with a 43% discount on its projected 2025 enterprise value to EBITDA (EV/EBITDA) compared to global peers. This valuation gap suggests that the market may not fully appreciate the company's growth prospects and its position within the industry.

The current EV/EBITDA ratio stands at 8.75, while the company maintains a moderate debt level with a debt-to-equity ratio of 0.96. For deeper insights into SQM's valuation and access to over 30 key financial metrics, check out the comprehensive Pro Research Report available exclusively on InvestingPro.

In other recent news, Sociedad Quimica y Minera de Chile S.A. (SQM) shared its third-quarter earnings report, revealing a miss on earnings but in-line revenues. SQM posted adjusted earnings per share of $0.46 for the third quarter, falling short of the analyst consensus of $0.63 by $0.17. However, revenue came in at $1.08 billion, meeting estimates.

The company also reported total revenues of $3.46 billion for the first nine months of 2024, a significant decrease from the $6.16 billion reported in the same period last year.

SQM also noted an 18% year-over-year increase in lithium sales volumes to over 51,000 metric tons, though average realized lithium prices fell 24% compared to Q2 2024 due to oversupply pressures.

In addition, the company's specialty plant nutrition volumes grew over 20% year-over-year, while iodine demand remained robust, leading to increased sales volumes and revenues versus last year. These are the recent developments that have unfolded for SQM.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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