Why brokers are optimistic about the Western Areas (ASX:WSA) share price after it dropped 17%

The Western Areas Ltd (ASX: WSA) share price slumped 17% on Friday following a weak quarterly report. Here's the rundown.

positive asx share price represented by lots of hands all making thumbs up gesture

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Western Areas Ltd (ASX: WSA) share price took an almost 20% nose dive last Friday, following its review of its Flying Fox mine. 

What happened to the Western Areas share price?

Western Areas downgraded its FY21 guidance on all fronts. Its nickel production was lowered to 17,000–19,000 tonnes from the original 19,000–21,000 tonnes forecast. Its unit cash cost of production also increased to be around $3.50 to $4.00 per pound of nickel, up from the previous $3.25 to $3.75 per pound guidance. The negative surprise resulted in significant trading volumes for Western Areas and a 17.74% slump on the day of the announcement. 

Big broker updates 

This week, a series of big broker updates have emerged after the news was digested over the weekend. Despite most brokers downgrading the Western Areas share price target, the commentary was surprisingly positive. 

Citi upgraded the Western Areas share price target from neutral to buy. It did however, lower its price target from $2.65 to $2.35. It notes that the company's quarterly production report missed expectations and saw a lowering in guidance for FY21, but the share price slump has improved the value proposition of the company. 

Credit Suisse lowered its Western Areas share price target from $2.50 to $2.35 and retains an outperform rating. It highlights the weak September quarter update on lower production and lower grades. It also fears that the "downturn may not be temporary and risks remain operationally". However, much like Citi, it believes the company's valuation has become more attractive due to the share price decline. 

Macquarie downgraded the company from outperform to neutral and lowered its price target from $2.80 to $2.00. The only differentiating commentary from Macquarie was its concern that the company could face funding issues. 

Likewise, Morgan Stanley lowered its price target from $2.75 to $2.55 and retains an overweight rating due to the disappointing quarterly production report. However, the broker takes an optimistic view that the issues are temporary. 

Foolish takeaway

Overall, big brokers have largely lowered their share price targets for Western Areas but also maintain a positive view that the share price discount has made the company more attractive. The key risk raised by the brokers is whether or not these production challenges are temporary or possess longer term implications moving forward. Fortunately, the nickel spot price has been strong in recent months and recently hit a 1-year high. 

Should you invest $1,000 in Amazon right now?

Before you buy Amazon shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Amazon wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Share Market News

Will ASX 200 investors get the RBA interest rate cut they're expecting tomorrow?

The RBA is widely expected to cut interest rates on Tuesday. Will the central bank deliver?

Read more »

Man holding a tray of burritos, symbolising the Guzman share price.
Share Market News

Wingstop mania hits Sydney — is Guzman y Gomez next in line to soar?

Can Guzman y Gomez be Australia’s next fast food success story on the ASX?

Read more »

A person sitting at a desk smiling and looking at a computer.
Share Market News

2 ASX small caps with serious market-beating potential

Here's two compelling ideas to add to your watchlist.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

A young woman wearing a red and white striped t-shirt puts her hand to her chin and looks sideways as she wonders whether to buy NAB shares
Opinions

The pros and cons of buying Wesfarmers shares in May

Is this retail giant an appealing opportunity?

Read more »

A man looking at his laptop and thinking.
Share Market News

5 things to watch on the ASX 200 on Monday

Here's what to expect on the local market today.

Read more »

Five retirees do a conga line dance on the beach celebrating the special dividend announced by Grange Resources today
Broker Notes

Why Macquarie thinks the NZ retirement village sector could be an emerging opportunity for ASX investors

Oceania Healthcare and Summerset could quietly emerge as high-upside plays for patient ASX investors.

Read more »

Excited couple celebrating success while looking at smartphone.
Broker Notes

5 high-conviction ASX 200 shares to buy

Brokers are tipping these shares as buys. Here’s what they rate highly.

Read more »