On Friday, BMO Capital adjusted its outlook on Sociedad Quimica y Minera (NYSE: SQM), a leading lithium producer. The firm reduced the price target for the company's stock to $70 from the previous $75 while maintaining an Outperform rating.
The revision follows the company's 2024 outlook and a general increase in positive sentiment towards lithium.
BMO Capital updated its forecasts based on a new model that now extends to 2035, including projections for dividends paid to Codelco between 2025 and 2030 based on net profits from 33.5kt/yr, and a scenario post-2030 where SQM will retain only half of the earnings from lithium operations in the Chilean Atacama region.
BMO Capital noted a slight decrease in near-term estimates primarily due to lower sales volumes, attributing this to an increased inventory build expected in 2024.
Despite the lower price target, the firm's valuation of SQM stock is based on approximately 5.5 to 6 times the projected 2025 enterprise value to EBITDA (EV/EBITDA), which is the first year dividends are expected to be paid to Codelco.
BMO Capital expressed a continued positive outlook on SQM, emphasizing the company's potential in the lithium market, which is crucial for the production of electric vehicle batteries and other high-tech applications. The price target adjustment reflects a nuanced view of the company's financial prospects over the next decade, taking into account the partnership with Codelco and the evolving market dynamics.
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