Is the worst over for Pilbara Minerals?

A 46% quarter-on-quarter revenue drop and share price rally is a rather unusual paring. But shares in Pilbara Minerals (ASX: PLS) managed to rally 5.8% on Wednesday after announcing a highly anticipated quarterly report amid a deepening selloff for lithium prices.

It's difficult to say whether the rally was borne from low expectations, the company's strong operational performance or the stock's high short interest (where shorters didn't get the dumpster fire they wanted).

Despite the share price running higher on Wednesday, brokers remain as bearish as ever. In this piece, we'll recap some of the latest comments from Citi, Goldman Sachs and more. We also explore some of the key highlights from the company's investor call.

Earnings call highlights

Here are some of the key takeaways from Pilbara Minerals Chief Executive Dale Henderson, as reported by the AFR.

• In response to short sellers: “I hope they’re shaking in their boots ... What we know in this industry is that pricing and demand can turn very quickly.”

• Lithium prices: “I wouldn’t call the bottom because we all get it wrong."

• More pain for lithium miners: Henderson said he expects more mines and projects to fail if prices remain at current levels or lower, adding that “I like the idea that we could do another Altura transaction, but it’s a different market from 2019-20. Time will tell."

• Cost curve: “What motivates us and gives us comfort is that … as these inevitable ebbs and flows occur, Pilbara will stay positioned at the better end of the cost curve."

Analysts Remain Bearish

Most analysts remain Sell rated and see further share price downside.

Morgan Stanley – Underweight with $2.85 target price

• Quarterly realised pricing of US$1,113 a tonne was 30% lower than Morgan Stanley estimates and missed consensus by 18%

• Quarterly production of 176,000 tonnes beat Morgan Stanley and consensus estimates by 7% and 9% respectively

• Quarterly shipments were softer-than-expected, indicating some inventory build which "may be on account of lower demand for end product"

UBS – Sell with $2.75 target price (cut by ~10%)

• Quarterly realised pricing was 15% below expectations as shipments were skewed to late in the quarter

• Quarterly production was 10% ahead of UBS estimates

• PLS reduced capex and cut dividends, saving ~$200 million. However, without "some more material cuts to supply, the market remains oversupplied presenting continued risk of low(er) prices for longer."

Goldman Sachs – Sell with $2.95 target price

• Shipment timing drove a lower realised price and resulted in quarterly revenue that was ~30% below Goldman Sachs expectations

• Analysts expect PLS' net cash position to trough at "a comfortable ~A$0.9-1.0 billion"

Citi – Neutral with $3.60 target price

Taking A Closer Look

Here's a closer look at what FY24 might look like, according to Goldman Sachs analysts. The below table compares FY23 actuals against FY24 forecasts.

Putting it all together

Analysts remain bearish on Pilbara Minerals and for good reason. Spodumene prices are currently trading around US$850 a tonne, which could present more near-term earnings deterioration and share price downside.

Most broker forecasts expect relatively subdued earnings in FY24-25 (negative YoY revenue and earnings growth, no dividends and negative free cash flow). Earnings are forecast to bottom in FY25 and by FY26, dividends are forecast to make a return and free cash flow yield ticks back into positive territory.

But as Henderson puts it, “there is a level of volatility, and it tends to surprise everyone. And it would be reasonable to expect more surprises.”