Lynas Rare Earths Ltd (ASX: LYC) shares are ending the week with a bang.
In afternoon trade, the rare earths producer's shares are up 9% to $18.85.
This means they are now up by over 170% since this time last year.
Unfortunately, the team at Bell Potter thinks this is the top and is warning investors that Lynas shares could come crashing down to Earth soon.
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What is the broker saying?
Bell Potter has been running the rule over Lynas' half-year results. While it was strong operationally, it fell short of expectations on the bottom line. The broker said:
Revenue was $413m (BPe $402m, VA $411.5m), a 62% increase on PcP, driven by a 49% increase in the basket price. The basket price increase was driven by a combination of higher premiums achieved for NdPr and a greater volume of NdPr sales as a portion of total REO sales (60% vs 56%). COGS of $220m (BPe $224m, VA $249m) expanded in-line with the increase in production, the inclusion of Kalgoorlie costs and power disruptions, importantly excluding depreciation this figure was below our estimates and consensus.
EBITDA of $152m was 4% ahead of our estimate and 2% ahead of consensus (BPe $146m, VA $149m). Depreciation was materially higher than we anticipated at $71.9m (BPe $38.3m, VA $43.8m). G&A expenses surprised to the upside as well, at $56m over the half, up from $47m in 2HFY25. At the NPAT line, LYC recorded $80m which was 7% below our estimate ($86m) and 13% below consensus ($92m).
Lynas shares tipped to sink
According to the note, the broker believes Lynas shares are severely overvalued at current levels.
This morning, it has retained its sell rating on them with a slightly improved price target of $11.60 (from $11.15).
Based on its current share price, this implies almost 40% downside over the next 12 months.
To put that into context, a $10,000 investment could turn into approximately $6,000 by this time next year if Bell Potter is on the money with its recommendation.
Commenting on its sell recommendation, Bell Potter said:
Fundamentals are improving, however we continue to see a significant premium applied to the stock. NdPr has risen more recently (+US$100/kg), we estimate the stock is factoring in ~US$175/kg into perpetuity. Our TP increases slightly and we maintain the Sell recommendation, EPS changes in this report are FY26: -8% FY27 – 10% FY28 -11%.
