Core Lithium shares sink 8% on broker downgrade

The team at Citi thinks investors should be selling this lithium miner's shares.

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Core Lithium Ltd (ASX: CXO) shares are crashing again on Thursday.

In afternoon trade, the lithium miner's shares are down 8.5% to a new 52-week low of 26.5 cents.

Why are Core Lithium shares being sold off again?

The weakness in the Core Lithium share price today appears to have been driven by the release of a bearish broker note out of Citi.

According to the note, the broker has downgraded the company's shares from neutral to a sell rating.

It has also taken an axe to its valuation, reducing its price target by almost 24% from 38 cents to 29 cents.

Why the downgrade?

Its analysts felt that the company's shares were overvalued based on lithium spot prices and think investors should be buying Mineral Resources Ltd (ASX: MIN) and Pilbara Minerals Ltd (ASX: PLS) instead.

The broker explains:

We downgrade Core to Sell retaining our preference for producers MIN & PLS with strong balance sheets.

On spot pricing i.e. lithium of US$1500/t, CXO's balance sheet screens the weakest across our lithium coverage. i) the stock has outperformed ASX lithium peers by 5% MTD, ii) CXO sits at the top of our CY23 propriety spodumene cost curve with spot now eating into ASIC margin, iii) CXO trades on >1x P/NAV on spot vs our lithium coverage of <0.8x, iv) macro: we are neutral on lithium until a post CNY restock.

We reduce our Target Price based on a blend of 4.0x forward EV/EBITDA and 1.0x NAV to 29cps from 38cps.

Following today's decline, the Core Lithium share price is now down by a disappointing 80%. To put that into context, that would have turned a $10,000 investment into just $2,000.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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