Are Liontown Resources shares a buy after surging 9% this week?

Could this be time for a reversal?

| More on:
A male lion with a large mane sits atop a rocky mountain outcrop surveying the view, representing the outlook for the Liontown share price in FY23

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

Liontown Resources Ltd (ASX: LTR) shares have faced a tough past year. From the 12 months to June 11, they lost 66% of their value.

Since entering the new financial year, the story is a little different. The stock is up 14% since July 1 and has surged 10% this week so far.

They currently fetch $1.02 apiece, more than 6% higher than yesterday's close. The chart below shows the last twelve months of Liontown's share price action.

Do the experts say Liontown is a buy? Here's a look.

Created with Highcharts 11.4.3Liontown Resources PriceZoom1M3M6MYTD1Y5Y10YALL12 Jul 202312 Jul 2024Zoom ▾Sep '23Nov '23Jan '24Mar '24May '24Jul '24Oct '23Oct '23Jan '24Jan '24Apr '24Apr '24Jul '24Jul '…Jul '24Jul '…0www.fool.com.au

Recent developments for Liontown shares

Liontown has made substantial progress towards transitioning from a lithium developer to a miner. As a reminder, the company's crown jewel is its Kathleen Valley Lithium Project.

Production is set to commence at the site, which could be a tailwind if successful, in my view.

In July, the company also secured a US$250 million convertible note agreement with LG Energy Solution to fund the development of its Kathleen Valley project.

After this transaction, it will have cash of around A$501 million, with $120 million set to be immediately invested into Kathleen Valley.

The remaining A$381 million and "additional liquidity provides balance sheet strength" for the site, it says.

What do analysts say?

Bell Potter is bullish on Liontown shares and praises the funding arrangement with LG Energy Solution. The broker reckons it removes some of the negative terms associated with undertaking traditional bank debt.

Goldman Sachs, on the other hand, recently provided a cautious earnings forecast for Liontown, considering its bearish outlook on lithium prices.

The firm estimates a gradual increase in revenue and profitability for Liontown from FY25 to FY29.

According to my colleague James' analysis, the broker expects revenue of $143 million in FY25, leading to a loss of $162 million.

By FY 2029, Goldman forecasts revenue to reach $1,326 million, with a profit of $330 million.

These estimates reflect a significant growth trajectory as estimated production ramps up and operational efficiencies improve.

Despite this, Goldman Sachs holds a neutral rating on Liontown shares with a price target of $1.15, noting:

For LTR, though we expect more modest cost escalation based on our benchmarking we remain Neutral on relative valuation.

Although it acknowledges the potential valuation uplift from de-risking and improved lithium pricing, it still advises caution until production and cost management are clearer.

Bell Potter, however, is more optimistic, maintaining a speculative buy rating and a $1.85 price target. It says that with initial production at Kathleen Valley on the way, Liontown shares are well positioned, according to my colleague James.

Meanwhile, according to CommSec, the consensus of analyst ratings says Liontown is a hold.

Foolish takeaway

Liontown Resources is at a critical juncture. With production set to start soon, the company could see significant growth if it manages costs effectively and ramps up production smoothly.

While Goldman Sachs advises caution, Bell Potter's bullish outlook suggests substantial upside potential. Based on this, there are risks in owning this stock before it successfully starts production, in my view.

In any case, it's essential to conduct your own due diligence and seek financial advice when necessary.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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 male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements
Materials Shares

How much upside does Macquarie forecast for Pilbara Minerals shares?

Is the broker bullish or bearish on this lithium giant? Let's find out.

Read more »

Group of miners working at a coal mine with one smiling and holding up a piece of coal.
Materials Shares

How much upside does Macquarie project for South32 shares?

Is this miner's luck about to change?

Read more »

A group of miners in hard hats sitting in a mine chatting on a break as ASX coal shares perform well today
Materials Shares

Down but not out: Can these ASX mining shares bounce back?

Here’s what one broker is predicting for Australia’s largest mining companies. 

Read more »

Broker analysing the share price.
Materials Shares

Buy, hold, or sell? Broker's verdict on 3 ASX 200 materials shares

Materials was one of four market sectors that weakened in overall value in FY25.

Read more »

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

Why is this ASX mining stock crashing 14% today?

Let's see what is causing investors to hit the sell button on Monday.

Read more »

Three miners stand together at a mine site studying documents with equipment in the background
Materials Shares

$10,000 invested in BHP shares in FY25 is now worth

Did the Big Australian outperform or underperform during the last financial year?

Read more »

A male investor sits at his desk pondering at his laptop screen with a piece of paper in his hand.
Share Market News

Why did Macquarie just downgrade Liontown resources shares?

Here’s what the broker had to say about this materials company. 

Read more »

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

Why did Macquarie downgrade Mineral Resources shares?

The broker is no longer bullish on this mining and mining services company.

Read more »