This lithium stock can rally nearly 40% thanks to the EV boom, according to Piper Sandler

Published Mon, Sep 26 202211:49 AM EDTUpdated Mon, Sep 26 20221:27 PM EDT

Lithium miners haven't been immune to the latest stock market sell-off, but Piper Sandler said the combination of the boom in electric vehicles and the broad focus on the transition away from fossil fuels should keep the theme on investors' minds. And Piper sees one stock that looks especially attractive: Livent . Analyst Charles Neivert recently assumed coverage of the Philadelphia-based company with an overweight rating and a 12-month price target of $42, implying a 37% rally from where shares closed Friday. Driving the firm's bullish case is the disconnect between supply and demand for lithium, a critical EV material. Piper believes the market will remain in a deficit for at least the next three to four years, and potentially longer "which will help sustain lithium pricing." "[T]he significant increase in earnings power and the structural changes to the [Livent] balance sheet they bring make 2024 earnings a more accurate representation of the company's outlook and value," Neivert said. He added that the company's upside earnings mean it can self-fund future expansion. Shares of Livent slid nearly 12% last week, but the stock has still registered a 25% gain for 2022. By way of comparison, the S & P 500 is down roughly 23% this year. Lithium is by no means scarce, but bringing new production online can take years. Mining is resource and capital intensive, and projects often face local opposition due to potential impacts on surrounding ecosystems. Recession concerns have been the major driver of the recent sell-off in stocks. But Piper said that Livent should perform well even if there is a global economic slowdown. The firm believes that any pullback in auto sales would be focused on internal combustion engines rather than electric vehicles. In other words, demand for lithium will remain high no matter the broader economic backdrop. In July, Livent and General Motors announced a long-term supply agreement. "We are building a strong, sustainable, scalable and secure supply chain to help meet our fast-growing EV production needs," Jeff Morrison, vice president at GM, said in a statement announcing the partnership. "We will further localize the lithium supply chain in North America over the course of the agreement," GM added. The Biden administration has repeatedly noted the importance of developing domestic supply chains for critical materials, and funding to support U.S.-based manufacturing is included in the recently passed Inflation Reduction Act. What's more, the incentives for electric vehicles are tied to portions of the battery being manufactured in the U.S. Shares of Livent briefly rose as much as 4% Monday but were little changed by late morning. — CNBC's Michael Bloom contributed reporting.