Core Lithium Stock Slides 8% Following Broker Downgrade

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Core Lithium Ltd (ASX: CXO) is experiencing a substantial decline, with its shares down 8.5% to a new 52-week low of 26.5 cents in afternoon trade. The primary driver behind this weakness is a recent bearish broker note from Citi, which has not only downgraded the company's shares from neutral to a sell rating but has also significantly reduced its valuation, dropping the price target by nearly 24%, from 38 cents to 29 cents.

Reasons Behind Core Lithium's Share Price Decline

The downgrade from Citi stems from its belief that ASX Core Lithium's shares were overvalued in the context of current lithium spot prices. The broker is urging investors to consider alternative options, specifically recommending shares of Mineral Resources Ltd (ASX: MIN) and Pilbara Minerals Ltd (ASX: PLS). Citi suggests that these alternatives possess more robust balance sheets, making them preferable investments in the current market environment.

Citi's Rationale for the Downgrade

Citi's analysts have outlined several factors contributing to the downgrade of Core Lithium. Firstly, the stock has outperformed its ASX lithium peers by 5% month-to-date. Secondly, Core Lithium occupies the top position on Citi's CY23 propriety spodumene cost curve, which, coupled with lithium spot prices, is impacting the ASIC margin. Thirdly, Core Lithium is trading at over 1x P/NAV on spot, while Citi's lithium coverage indicates an average of less than 0.8x. Lastly, from a macro perspective, Citi maintains a neutral stance on lithium until a post-Chinese New Year restock.

Valuation Adjustments

In response to its analysis, Citi has reduced its Target Price based on a blend of 4.0x forward EV/EBITDA and 1.0x NAV to 29 cents from the previous 38 cents. This reduction reflects Citi's concerns about Core Lithium's current positioning in the market and its potential for growth.

Impact on Core Lithium's Share Price

Following the Citi downgrade, the Core Lithium share price has experienced a significant decline of 80%. This substantial drop underscores the challenges faced by the company and the impact of broker recommendations on investor sentiment.

Conclusion

As Core Lithium grapples with a downgrade and market headwinds, investors are urged to carefully consider their positions and explore alternative investment opportunities in the lithium sector. The dynamics of lithium spot prices and the company's relative performance compared to peers will likely influence its trajectory in the near term.
Location: Australia

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