Despite being sold off earlier this year, Jefferies remains optimistic about SQM’s prospects in the commodities market. Analyst Alejandro Demichelis has upgraded U.S. shares of the Latin American lithium producer to buy from hold. He has also raised the price target by $10.80 to $62.80, indicating a potential upside of 31.9%. This upgrade is based on the attractive valuation that SQM currently offers, as the company undergoes a reshaping process.
Demichelis notes that the market is not fully appreciating SQM’s low-cash cost advantage in the lithium space. Additionally, the increasing international presence of the business could lead to greater growth opportunities that are not fully anticipated by the market in the long term. Despite performing similarly to peer Albemarle since the beginning of the year, SQM’s lack of outperformance is attributed to uncertainties surrounding a potential deal to extend a Chilean lithium concession.
While no definitive agreement has been reached yet, Demichelis believes that the plan to extend the Chilean concession could create significant value for SQM once executed. Although these developments may not impact the company’s near-term earnings, they are expected to strengthen SQM’s competitive position in the years to come.
SQM shares saw a positive movement, up more than 6% during Monday morning trading. However, the stock has underperformed the market in 2024, with a 16% drop year to date. This may be due to the uncertainties surrounding the Chilean concession extension and the cautious outlook on lithium prices. Nevertheless, Jefferies’ upgrade and positive outlook could signal a turnaround in SQM’s stock performance in the future.
SQM represents an attractive opportunity in the commodities space, with the company’s ongoing reshaping efforts and potential for value creation through international expansion. Investors should consider the long-term growth prospects of SQM, as emphasized by Jefferies’ bullish stance on the stock.