Arcadium Lithium surges as RBC starts as a buy, driven by strong production growth

Arcadium Lithium (NYSE:ALTM) +12.7% in Wednesday’s trading as RBC Capital rates the stock as a new Outperform with a $4 price target, saying the company offers investors “the most vertically integrated, and diversified lithium and chemical exposure across our coverage.”

The RBC team sees production growth as the key driver of returns over the next few years, as lithium pricing likely will come in flattish, and expects Arcadium (ALTM) will increase lithium carbonate equivalent production from 61K tons in 2023 to 142K tons in 2027, a five-year compound annual growth rate of 23%, resulting in earnings tripling over the period.

RBC says Arcadium (ALTM) provides “vertically integrated lithium exposure; offers lithium chemistry diversity, which should support its ability to secure returns regardless of the dominant long-term battery chemistry; and exposure to downstream chemicals (~11% revenue).”

The bank notes Arcadium (ALTM) is investing heavily in growth, with the company forecast to spend ~$1.6B on sanctioned projects over the next three years, likely meaning negative free cash flow until 2027, with net debt peaking at ~$860M.