For some time now, analysts at Goldman Sachs have been warning investors off Core Lithium Ltd (ASX: CXO) shares.
And if you listened, you would have saved yourself from some huge declines over the last 12 months.
For example, as you can see on the chart below, Core Lithium shares have lost approximately 70% of their value since this time last year.
The good news, though, is that Goldman Sachs is no longer a bear when it comes to this lithium miner. This morning, its analysts finally see some value in the company's shares and have taken their sell rating off them.
What's Goldman saying about Core Lithium shares?
According to the note, the broker believes that following the recent derating of its shares, the company's "production risks [are] now more priced in."
In light of this, the broker has upgraded the company's shares to a neutral rating with a 44 cents price target. This implies a potential upside of 6% from current levels.
Another reason for the upgrade was the company's cash balance. Goldman highlights that the company has almost a third of its market capitalisation in cash. It feels this provides some protection from falling lithium prices in the near term. It explains:
While we still expect developers to underperform ramped up producers into the declining lithium price environment, we upgrade CXO to Neutral on valuation, with production risks now more priced in at 1.1x NAV (peers 1.1-1.2x NAV) or pricing ~US$1,100/t LT spodumene, and ~30% of CXO's market cap now in cash on hand potentially partially mitigating exposure to falling lithium prices. Since we initiated on CXO with a Sell rating on 7 Dec 2022, the CXO share price has fallen 69% vs the ASX 200 at -1% and spodumene/ carbonate/ hydroxide prices down -46%/-62%/-63% over the same period.
