Morgan Stanley says this Tesla-supplying global battery material stock could soar by 81%

Published Sun, Nov 6 20228:11 PM EST

Morgan Stanley expects shares in Asian battery component maker L & F Co to rally by 81% by the end of next year. The Wall Street bank named the South Korean company as a top stock idea in a note to clients on Nov. 2, reiterating its price target of 400,000 won ($283) and overweight rating. The stock closed at 221,000 won Friday. The company, which counts Tesla as one of its large customers, has been making electrodes for batteries since 2005. Last year, it announced plans to expand into the United States through a deal with Nevada-based startup Redwood Materials, which is led by Tesla co-founder J.B. Straubel. However, South Korean authorities temporarily blocked the expansion plans in September after the government deemed L & F's high-nickel cathodes a "national core technology". Morgan Stanley maintained its price target and rating on the stock despite the delays to the U.S. joint venture. "We don't take this as a structural risk to the company or the industry, and would advise adding to positions on potential weakness," the bank's analysts said in September. L & F, which also supplies battery materials to SK Innovation, LG, and Samsung , said it intends to resubmit its application to the South Korean government in the fourth quarter. Equity analysts at Jefferies have a buy rating and 370,000-won price target on the stock, implying a 67% upside. In addition, the analysts said they have an "optimistic outlook" on the company, thanks to its 320% revenue growth in the second quarter compared to last year. Investment bank JP Morgan also has an overweight rating on the stock, and expects L & F's shares to rally by 27% to 280,000 won by Dec next year. Analyst Jay Kwon pointed to a number of positive developments at the company, but said he was applying a "conservative valuation approach" to the stock due to the falling risk appetite toward growth stocks. "L & F team has not seen any order slowing from key end customer (TSLA) and expects a continued sequential increase in the next two quarters," Kown said in a note to clients on Oct. 16. "We have an OW rating on L & F for three reasons: i) its premium customer base (end customer: TSLA) and new partnership potential, ii) technology advancement in high-nickel chemistry and its potential to stay ahead of the competition, and iii) its superior capital efficiency and aggressive capacity build-out plan vs industry peers," he added.