Arcadium Lithium plc ( ARLTF ) shares are trading higher today. RBC Capital analyst Kaan Peker initiated coverage on the stock with an Outperform rating and a price target of $4.00.

The analyst writes that Arcadium, formed by the recent merger of Allkem and Livent, offers investors highly integrated and diversified exposure to lithium and chemicals.

The analyst says the company shows strong production growth potential from its world-class brine operations.

Peker predicts production growth to drive returns in the next few years, with Arcadium projected to increase LCE production from 61kt in CY23 to 142kt in CY27, tripling earnings over the period.

The analyst anticipates heightened execution risks in CY26-27, as Sal de Vida stage 1, Nemaska, and James Bay are scheduled to commence operations.

ALTM plans to invest around $1.6 billion in growth projects over the next three years. The analyst anticipates negative free cash flow until CY27, with net debt expected to peak around $860 million and gearing at a relatively modest 11% in CY26.

Peker writes that EV demand has been weaker than expected but should improve in 2025 and beyond, which presents a good entry point, with a preference for large-cap, low-cost lithium exposure in the current market.

The analyst estimates EPS of $0.15 in FY24, $0.32 in FY25, and $0.53 in FY26.

Price Action: ALTM shares are up 12.70% at $3.59 at the last check on Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.