Are Pilbara Minerals shares a top buy after 'strong beat'?

Let's see what one leading broker is saying about this lithium giant.

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Pilbara Minerals Ltd (ASX: PLS) shares were on form on Wednesday.

The lithium miner's shares rose over 3% to end the session at $2.36.

Investors were buying the company's shares after responding positively to its quarterly update.

Broker reaction

Bell Potter was very pleased with the update, highlighting that the company delivered a "strong beat" to its estimates despite moving to the P850 operating model. Commenting on the quarter, the broker said:

PLS reported quarterly spodumene concentrate (SC) production of 188kt (BP est. 168kt) and sales of 204kt at 5.3% Li2O (BP est. 168kt); a strong beat to our estimates despite the implementation of the smaller 'P850' operating model which included the idling of the Ngungaju processing plant. Realised pricing improved to US$796/t (SC6 basis), or a 97% realisation to Fastmarket's SC6 index.

This compares with historical realisation in the mid-80%s; higher realisation should continue under renegotiated offtake terms. At 31 December 2024, PLS held cash of $1.2b (prior quarter $1.4b) and available liquidity of around $1.8b, following quarterly capex of $222m largely related to the P1000 expansion project.

Bell Potter also highlights that the deal to acquire Latin Resources Ltd (ASX: LRS) is nearing completion and provides Pilbara Minerals with an opportunity to enter the North American market. It said:

On 4 February 2025, the acquisition of Latin Resources is expected to complete, providing relatively low-cost development optionality and potential to integrate into North American markets. PLS will progress development studies and Mineral resource delineation, aiming to ready itself to capitalise once lithium market conditions strengthen.

Should you buy Pilbara Minerals shares?

In response to the update, the broker has reaffirmed its buy rating on the company's shares with a modestly improved price target of $3.00 (from $2.95).

Based on the current Pilbara Minerals share price of $2.36, this implies potential upside of 27% for investors over the next 12 months.

And while no dividends are expected in FY 2025, the broker sees scope for payouts to return in a couple of years in FY 2027.

Commenting on its bullish view of the stock, the broker said:

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 market shortfalls from 2026-27.

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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