The last six months have been tough for Pilbara Minerals Ltd (ASX: PLS) shares.
During this time, the lithium miner's shares have lost 27% of their value.
Investors have been selling the company's shares in response to significant and ongoing weakness in lithium prices.
Is the pain over for Pilbara Minerals shares?
Unfortunately, the team at Goldman Sachs doesn't believe the declines are over.
As a result, this morning the broker has downgraded the company's shares to a sell rating with a $3.20 price target.
Based on where Pilbara Minerals shares currently trade, this implies potential downside of 14.5% over the next 12 months.
What did the broker say?
Goldman has lifted its longer term production estimates to reflect management's plans to expand beyond 1,000,000 tonnes per annum. It said:
With PLS noting that moving significantly Beyond P1000 is likely mine constrained, we have assessed/outline a range of expansion scenarios considering previous studies and incorporate a P1400 expansion into our base case, producing from FY28E.
While this is positive, the broker believes the market underestimates the potential cost and timing of this expansion. It adds:
However, though consensus already carries expanded production, we now sit ~A$0.9bn above on total capex spend to FY28E and see growing risk that a Beyond P1000 expansion disappoints vs. market expectations on a combination of capex, size, or timing.
Overall, the broker believes this and weak lithium prices will weigh on the company's free cash flow and feels that its shares are expensive because of this. It explains:
With our view of ongoing supply pressure in the lithium market, and PLS recently outperforming peers despite near-term FCF continuing to decline on lithium prices and increasing growth spend (c.-10% FCF yield in FY24E, and c.0% in FY25-27E), we see PLS as relatively expensive on fundamentals, and downgrade to Sell.
