Lynas Rare Earths Ltd (ASX: LYC) shares have been on fire during the past six or seven months.
Since hitting a 52-week low of $5.49 in March, the rare earths producer's shares have risen approximately 42%.
This leaves the company's shares trading at $7.77, which is just shy of their 52 week high.
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Can Lynas shares keep rising?
Unfortunately, one leading broker appears to believe that now could be the time to take a bit of profit off the table.
According to a note out of Bell Potter this morning, its analysts have downgraded Lynas shares to a hold rating (from buy) with a trimmed price target of $8.00 (from $8.30).
Ahead of the company's quarterly update, the broker believes that Lynas could fall short of the market's expectations. It said:
We estimate 1QFY25 NdPr production of 1,426t (-5% QoQ, -13% below VA cons), revenue of $121m (-12% QoQ). Management guided to a slow start to FY25 at the FY24 result, with the planned shutdown towards the end of CY24 and the delay in the Mt Weld expansion (scheduled completion mid-CY25).
What else did the broker say?
The note reveals that Bell Potter has trimmed its forecasts for FY 2025 to reflect its belief that rare earths (NdPr) prices will be lower than previously expected. It said:
We have lowered our NdPr price forecast to US$70/kg over FY25 (from US$76/kg), which has driven the majority of our ~9% reduction in FY25 revenue. We've also noted an increase in sulphuric acid prices over 1QFY25, which has seen an increase in our operating cost estimates.
LYC has performed well recently (+24% since Aug-24), with the implied price now assuming a US$102/kg NdPr under our production outlook. Whilst we remain positive over the long-term, we view LYC to be trading in-line with our blended valuation. Downstream demand has begun to increase, however we suspect the ramp up to take longer (and therefore prices to rise slower) than what is implied in the current valuation.
Commenting on its downgrade, the broker then adds:
Our target price is lowered to $8.00/sh (previously $8.30) and our recommendation shifts to Hold (from Buy). LYC is targeting finalisation of the Mt Weld expansion by the end of FY25, which removes the bottleneck to growth in the business, allowing for production up to 12ktpa NdPr. Earnings changes in this report are FY25 -29%, FY26 – 15% and FY27 -4%.
