The Lynas Rare Earths Ltd (ASX: LYC) share price was out of form on Monday.
The rare earths producer's shares dropped 3.5% to $6.07.
This leaves Lynas' shares trading within touching distance of a 52-week low.
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Should you buy Lynas shares?
According to a note out of Bell Potter, its analysts believe that recent weakness has created a buying opportunity for investors.
In response to the company's first-quarter update, the broker has retained its buy rating with a slightly trimmed $8.20 price target.
This price target implies a potential upside of 35% for investors over the next 12 months.
What did the broker say?
Bell Potter acknowledges that Lynas has had a "wobbly start" to FY 2024. It said:
LYC 1QFY24 production was 1,526t (NdPr), 18% lower QoQ and 7% below our estimates as maintenance works were carried out at Lynas Malaysia (LAMP) over the quarter. Sales of 2,825t REO were 30% lower than 4QFY23 with LYC stockpiling ~22% of production over the quarter, which was beyond our assumption of 15%.
Nevertheless, even after factoring this into its valuation, the broker sees plenty of value in Lynas shares at current levels. Particularly given its long-term growth opportunities. It adds:
We have incorporated the 1QFY24 results and updated guidance which resulted in a 3.5% decrease in our target price to $8.20/sh (previously $8.50/sh) and we maintain our Buy recommendation in accordance with our ratings structure.
LYC is a high-quality business, and a key supplier of separated rare earths to Western economies. We do see risks of further earnings revisions over the next 12 months, however, note that this is a transition period, and the growth options over the long-term outweigh the near term risks.
