A bet on Arcadium stock is really a bet on electric cars.
Shares of Arcadium Lithium (ALTM 12.38%), the giant lithium mining stock formed from the merger of America’s Livent and Australia’s Allkem in January, surged 10.5% through 12:15 p.m. ET Wednesday — and you can thank the friendly bankers at RBC Capital for that.
This morning, RBC analyst Kaan Peker initiated coverage of Arcadium Lithium stock, predicting the lithium miner will outperform the stock market, and hit $4 a share within 12 months.
What RBC says about Arcadium Lithium
Calling Arcadium Lithium “the most vertically integrated, and diversified lithium and chemical [company] across our coverage” in a note covered on The Fly, Peker argues that Arcadium is also on a strong growth path. From 61,000 tons of lithium carbonate produced from brine in 2023, the analyst forecasts Arcadium will more than double its output to 142,000 tons in 2027 — 23% annualized production growth.
Even better for investors, Peker predicts Arcadium will triple its earnings off that output.
Is Arcadium Lithium stock a buy?
What will that work out to in dollars and cents? Well, Arcadium earned $330 million last year, and triple that amount would therefore be about $1 billion in net income in 2027 — and Peker’s not alone in saying so. According to forecasts collated by S&P Global Market Intelligence, most analysts who follow Arcadium stock agree that earnings should approximate $1 billion by 2027.
If they’re right, this means that at Arcadium’s current share price — about 15 times earnings today — the stock costs less than 3.5 times the profit it will be earning just three years from now, which sounds pretty cheap. Granted, there’s a lot of guesswork involved in this. Even with rising production, Arcadium’s first-quarter 2024 earnings declined steeply on falling lithium prices. For RBC’s buy thesis to work, not only does production need to rise as predicted, but lithium prices also need to rise, and that probably means demand for lithium to power electric cars needs to rise.
A bet on Arcadium stock, therefore, is actually a bet on the electric cars’ popularity increasing. Best tread carefully on that one.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.