Why Macquarie is tipping 55% upside for ASX lithium share Allkem

The broker gave a handsome upgrade to the lithium company's price target this morning.

| More on:
A young man wearing glasses and a denim shirt sits at his desk and raises his fists and screams with delight.

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

Key points

  • The Allkem share price is gaining today amid a significant broker upgrade
  • Macquarie's new price target sees 55% upside for the lithium company's  shares
  • It comes on the back of increased lithium demand and other positive developments for ASX lithium shares over the past week

The Allkem Ltd (ASX: AKE) share price is enjoying a rally on Tuesday amid some positive broker sentiment.

Shares in the lithium developer are currently going for $14.025 each, up 4.04%, after hitting an intraday high of $14.14 this morning. That's almost 5% higher on the day.

For context, the S&P/ASX 200 Materials Index (ASX: XMJ) is 0.11% lower at the time of writing while the S&P/ASX 200 Index (ASX: XJO) is up just 0.05%.

The Allkem price surge comes after Macquarie gave the company a very bullish price target of $21 per share, a further 55% upside. Let's investigate what the broker said.

Why did Macquarie give Allkem a 55% upside?

Macquarie used a couple of valuation techniques to arrive at the projected fair value of Allkem shares. These included calculating its net present value and forward enterprise value to earnings before interest, taxes, depreciation, and amortisation (EBITDA) ratio, as the Australian Financial Review reported.

The broker said:

AKE continues to highlight the tripling of production by 2026 to 120ktpa and has highlighted that numerous studies are underway to target the next leg of growth beyond 2026. Buoyant lithium prices continue to drive material upside, with [free cash flow] yields above 30 per cent from FY26 at spot prices.

As part of the analysis, the broker also projected free cash flow and sales forecasts for FY23. Macquarie expects Allkem to have a free cash flow of $595 million and sales of $1.57 billion.

This outlook for Allkem comes amid broader positive developments for ASX lithium shares over the last week.

These include an increased price target for lithium itself and the US state of California mandating that all new vehicles sold in the state are to be EV or hydrogen-powered by 2035.

Allkem share price snapshot

The Allkem share price has had a buoyant year so far, trading 34% higher year to date. Meanwhile, the broader Materials Index has recorded an 8% loss over the same period.

The company's current market capitalisation is around $8.93 billion.

Should you invest $1,000 in Betashares Australian Sustainability Leaders Etf right now?

Before you buy Betashares Australian Sustainability Leaders Etf 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 Betashares Australian Sustainability Leaders Etf 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 Matthew Farley 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 recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.
Materials Shares

Why are Fortescue shares charging higher today?

What is getting investors excited today? Let's find out.

Read more »

Business people discussing project on digital tablet.
Materials Shares

What does Macquarie think Liontown Resources shares are worth?

Let's see if analysts think that this lithium miner is in the buy zone or best avoided.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Materials Shares

Lynas shares charge higher on big news

What is getting investors excited today? Let's find out.

Read more »

Lion holding and screaming into a yellow loudspeaker on a blue background, symbolising an announcement from Liontown.
Materials Shares

Liontown Resources shares roar higher on big news

This lithium miner is catching the eye with some big news. Here's what is happening.

Read more »

Image of young successful engineer, with blueprints, notepad and digital tablet, observing the project implementation on construction site and in mine.
Materials Shares

What does Macquarie think BHP shares are worth?

Is now a good time to buy the miner's shares? Let's find out.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Materials Shares

What does Macquarie think Pilbara Minerals shares are worth?

Is this lithium miner dirt cheap? Let's find out.

Read more »

Two miners standing together.
Materials Shares

Is it time to buy this beaten down lithium share?

This diversified miner’s share price has been hit on multiple fronts. What does it mean for investors?

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

Pilbara Minerals share price falls on 30% quarterly revenue slump

ASX investors are bidding down Pilbara Minerals shares on Thursday. Here’s why.

Read more »