Key takeaways:

• Pilbara Mineral share price has increased from $0.29 per share at the start of 2020, to nearly $5 per share in May 2023

• For the first time in its history, PLS declared a dividend when it reported its HY23 results

• The majority of analysts view PLS in a positive light in terms of recommendations, despite the mean price target sitting below the current share price

Note: All figures in the following report have been sourced from Refinitiv, based on data available at May 22, 2023. For more information, sign up to Selfwealth Premium and gain access to hundreds of detailed stock reports on ASX and US-listed companies.For much of its life as a publicly-listed company, Pilbara Minerals (ASX: PLS) was a relatively anonymous company, blending in among the hundreds of mining entities that call the ASX home.

However, as investors began to pay more attention to the important role that lithium will play in the decarbonisation transition, PLS grew to become a prominent player in this field.

Thanks to its 100% owned Pilgangoora Project located 120 km from Port Hedland - the largest independent hard-rock lithium operation in the world - the company has emerged as a leader in the exploration, development, and mining of lithium spodumene. The company is currently worth approximately $14.4 billion.

Pilbara Minerals is also involved in a joint venture with Atlas Iron at the nearby Mt Francisco Project, which hosts a large occurrence of outcropping pegmatites located near Port Hedland. It is also working on a proposed downstream joint venture to develop a lithium chemical conversion facility in South Korea to process 43,000 tonnes per annum of lithium carbonate equivalent (LCE).

Pilbara Minerals Performance and Returns

One of the reasons Pilbara Minerals has become a well-known name today is because of its star performance over recent years. 

Since May 2018, the stock has delivered shareholders a cumulative return of 471%, making it one of the best-performing stocks on the ASX over the last five years. Across the same timeframe, the ASX 200 has increased 20.4%, excluding dividends.

The majority of Pilara returns have occurred since late 2020. Surging interest in lithium and battery metals stocks resulted in the company reversing what was a two-and-a-half year downtrend. 

In fact, over the last 12 months, the stock is up 68.8%, and while some distance off its all-time high, the stock is still up 19.7% and 12.9% on one-month and three-month timelines respectively.

Observers may wish to take note that PLS shares are currently trading 24.2% above their 50-day moving average of $4.02 per share, and 14.8% above their 200-day moving average of $4.35 per share. The stock recorded an all-time high of $5.66 per share in November 2022.

Pilbara Minerals Key Investor Metrics

Thanks to booming lithium prices, Pilbara Minerals significantly improved its revenue throughout the course of 2022. 

By the end of the year, total revenue had increased to $1.2 billion, versus just $175.8 million a year prior. That increase corresponds with growth of 653.6%, and goes some way towards explaining why the company share price has soared in recent times.

Meanwhile, the company delivered profits in a highly efficient manner, as evidenced by a return on equity reading of 99.2%. Generally speaking, the higher the ROE, the better a company is at converting its equity financing into profits.

In relation to its peers, Pilbara gross margins were higher than its industry group average for each of the past five years, and in 2022 they were 79.1%.

Net margins of 54.9% were also higher than peers like BHP (ASX: BHP), Rio Tinto (ASX: RIO), and South32 (ASX: S32), which recorded margins of 45.6%, 22.4%, and 25.7% respectively.

Amid the enormous share price gains that Pilbara has chalked up, its premium has widened versus some of its peers. On a trailing basis, PLS price-to-earnings (PE) ratio is 27, which is more than double the ASX 200 index average of 12.4, and more than three times the metals and mining group average (8.2).

However, the stock is trading on a forward PE that is well below that of its peers. Pilbara Minerals' forward PE ratio is currently 6.4, which compares favourably against the metals and mining group average (9.2), the ASX 200 index average (15.3), and even PLS five-year average (20.5). 

In the case of forward PE ratios, Pilbara discount' is likely due to expectations lithium demand will be strong in the future as EV uptake continues to build, and the company earnings may grow significantly over the coming years.

Pilbara Minerals Share Opportunities and Outlook

Based on mean earnings per share (EPS) forecasts, there have been a number of earnings surprises in PLS over the last six years. On three occasions, being the three most recent years, earnings surprised to the downside more than 2%. In the case of FY17 and FY19, these were categorised as positive earnings surprises, while FY18 was in-line with analysts expectations.

The last four weeks have brought about a number of revisions to the company expected earnings, mostly to the downside. In total, 13 downward revisions have occurred, with the average revision slashing EPS by 81.3%. Over the same period, just one upward EPS estimate occurred, with the analyst raising its forecast by 6.3%.

Looking ahead, the mean target for Pilbara earnings in 2023 is 78.1 cents per share, with the upper end of the range guided by an EPS forecast for 88.7 cents, and the lower end of the range forecasting 71 cents per share. 

Those numbers are expected to decline the following year, with mean EPS coming in at 56.3 cents, including a high of 99.7 cents per share, and a low of 36 cents per share.

It would seem that one of the reasons analysts expect Pilbara earnings to slow in 2024 is a decrease in revenue over that time. For 2023, the mean estimate for revenue among analysts is $4.1 billion, followed by a drop to $3.2 billion in 2024. Nonetheless, those two figures represent growth of 245% and 171.1% versus 2022.

Pilbara Minerals Key Risks

As with other companies in the metals and mining space, the earnings outlook for Pilbara Minerals is directly tied to the price of its focal commodity - lithium.

Naturally, higher lithium prices will be supportive of earnings growth, all else being equal. However, the company is also working on boosting production capacity of spodumene concentrate at its Pilgangoora lithium deposit, from 680,000 tonnes per year to nearly one million tonnes per year.

The company is targeting first ore for the March quarter of 2025, followed by commissioning, ramp-up, and full production by the end of the September quarter of that year.

In the meantime, however, lithium prices have shown signs of volatility. After numerous quarters of price growth, Pilbara incurred a 15% drop in prices for its spodumene concentrate during the first quarter of the year, with market dynamics in China softening demand. 

Analysts have put forward differing views for the outlook of lithium, but recent weeks have seen lithium carbonate prices pare losses.

At the same time, Pilbara costs will also come into focus after recently hiking full-year cost guidance from between $580 and $610 a tonne, to between $600 and $640 a tonne. Labour shortages, a disrupted supply chain, and inflationary costs remain ongoing challenges.

Pilbara Minerals Share Dividends

Up until recently, Pilbara Minerals was focused exclusively on putting its capital to work in order to generate earnings. That decision has paid dividends for the company - quite literally.

For the first time in its 15-year history as a publicly-listed company, PLS declared an inaugural dividend of 11 cents per share when it reported its half-year results back in February this year. 

When the company first hinted that dividends would feature as part of its strategy to deliver shareholders returns, management suggested Pilbara would target a payout ratio of 20%-30% of free cash flow. 

From here, it remains to be seen whether the company continues to pay dividends. However, the fact the company has suddenly delivered consecutive years of profits gives rise to an optimistic outlook if lithium prices continue to underpin strong free cash flow for the company. 

Ultimately, Pilbara capital management framework seeks to allocate available capital between investment into the existing business, sustainability commitments, strategic growth opportunities, as well as the provision of sustainable returns to shareholders¯.Period

Dividend (AUD)

Franking

Interim HY23

$0.11

100%

Final FY22

$0.00

N/A

Interim HY22

$0.00

N/A

Final FY21

$0.00

N/A

Interim HY21

$0.00

N/A

Final FY20

$0.00

N/A

Interim HY20

$0.00

N/A

Pilbara Minerals Analyst Ratings 

Currently, Pilbara Minerals is viewed positively by the broker community, with the stock holding a buy' rating across an aggregate of 16 analysts covering the company.

By breakdown, five analysts deem the stock a strong buy¯, five view the stock as a buy¯, and three view the company as a hold¯. Rounding out the coverage, two brokers consider PLS a sell¯, while just the one analyst is bearish against the company to the extent they rate PLS a strong sell¯.

Across the last 120 days there have been two broker upgrades.

The mean 12-month price target for Pilbara Minerals is currently $4.46 per share, which is approximately 7.3% below the current trading price of $4.81 per share.

Nonetheless, there is a wide variance in the opinions of analysts. The highest price target among the broker cohort is $7.70 per share. On the other hand, the lowest price target among analysts is $3.00 per share.