Stock Analysis

Analysts Are Betting On Lynas Rare Earths Limited (ASX:LYC) With A Big Upgrade This Week

Source: Shutterstock

Lynas Rare Earths Limited (ASX:LYC) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The revenue forecast for this year has experienced a facelift, with the analysts now much more optimistic on its sales pipeline.

Following the upgrade, the current consensus from Lynas Rare Earths' six analysts is for revenues of AU$989m in 2022 which - if met - would reflect a substantial 64% increase on its sales over the past 12 months. Prior to the latest estimates, the analysts were forecasting revenues of AU$896m in 2022. It looks like there's been a clear increase in optimism around Lynas Rare Earths, given the substantial gain in revenue forecasts.

View our latest analysis for Lynas Rare Earths

ASX:LYC Earnings and Revenue Growth March 10th 2022

The consensus price target rose 7.4% to AU$10.98, with the analysts clearly more optimistic about Lynas Rare Earths' prospects following this update. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Lynas Rare Earths at AU$14.00 per share, while the most bearish prices it at AU$4.50. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting Lynas Rare Earths' growth to accelerate, with the forecast 170% annualised growth to the end of 2022 ranking favourably alongside historical growth of 12% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 1.1% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Lynas Rare Earths to grow faster than the wider industry.

The Bottom Line

The most important thing to take away from this upgrade is that analysts lifted their revenue estimates for this year. They're also forecasting more rapid revenue growth than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Lynas Rare Earths.

Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Lynas Rare Earths that suggests the company could be somewhat undervalued. For more information, you can click through to our platform to learn more about our valuation approach.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

Valuation is complex, but we're helping make it simple.

Find out whether Lynas Rare Earths is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis