Now could be the time for investors to snap up Pilbara Minerals Ltd (ASX: PLS) shares.
That's the view of analysts at Bell Potter, which have just upgraded the beaten down lithium miner's shares to a buy rating.
What is the broker saying about Pilbara Minerals shares?
With short interest in the lithium miner falling and the broker expecting a lithium deficit in 2026, its analysts feel that now is an opportune time to load up on the company's shares. Especially as they are down heavily in recent weeks.
Commenting on its change of rating, the broker said:
We upgrade our PLS recommendation to Buy (from Hold) on recent share price weakness. The short position in PLS has fallen substantially in recent weeks, now 12% compared with ~20% since November 2023. The falling short position was associated with a quarterly rebalance seeing PLS drop out of the MSCI Australia index. Counter to PLS' weak share price, lithium markets have stabilised and commodity prices marginally improved.
We calculate that recent supply curtailments from Australian producers (including PLS) have removed around 50kt of Lithium Carbonate Equivalent from the market (around 4% of 2024 supply). On our supply-demand modelling, the cuts result in a smaller market surplus in 2025 and brings forward our estimate of a market deficit to 2026 (previously 2027).
It also notes that with such a strong balance sheet, Pilbara Minerals is well-placed to take advantage of any market deficit if and when it happens. It adds:
PLS' robust balance sheet ($1.4b cash at 30 Sep 2024) continues to fund expansion initiatives, readying the company to capitalise on our forecast improvements in lithium prices.
Big potential returns
According to the note, the broker has upgraded Pilbara Minerals shares to a buy rating with a $2.95 price target.
Based on its current share price of $2.29, this implies potential upside of 29% for investors over the next 12 months. If this proves accurate, it would turn a $5,000 investment into approximately $6,450 by this time next year.
Commenting on its buy recommendation, the broker concludes:
PLS operates a low-cost asset in a tier one jurisdiction, is diversifying through the lithium value chain, and provides a clean exposure to global lithium fundamentals and sentiment. While we expect lithium prices to remain volatile, we hold a robust EVdemand driven long-term market outlook. We believe higher prices are required to incentivise new sources of supply to moderate our forecast shortfalls from 2026.
