New Lithium Americas Price Target, Trading Plan Ahead of Earnings

This is a tough one. 

Lithium Americas (LAC)  is set to report on Friday morning. Readers know that we took some profits (not a lot) earlier in October when our $9.50 target price was taken out and we lifted that target to an even $12. Hence, the stock peaked at $10.52 on October 15 and has been coming in rapidly ever since. 

We even sold half of our long position in Ramaco Resources (METC) and have been methodically deploying that capital into LAC as the shares gave back their September/early October gains. 

Early in October, the firm reached an agreement in principle with the Department of Energy to receive the first draw of $435 million on a previously announced $2.26 billion loan that had been secured during the Biden administration. That's at least partially what caused the spike. As part of this deal, the Department of Energy will take on a 5% equity stake in the company through warrants to buy common stock at an exercise price of $0.01 per share. 

In addition, the Department of Energy will also receive a 5% economic stake in the Thacker Pass project through warrants also bearing an exercise price of $0.01. The DOE has also agreed to defer $182 million worth of debt servicing costs for the firm over the first five years of the loan. Thacker Pass, for those new to this story, is in Nevada and is the world's largest known measured lithium deposit.

Earnings and Fundamentals

For the firm's fiscal third quarter, due Friday, Wall Street is looking for a GAAP EPS of -$0.05 on literally no revenue. The company's next dollar generated will be its first. Estimates run from -$0.10 up to -$0.03. 

For the trailing 12 months, as of June, the firm had burned $454.2 million in cash through capital expenditures while operating cash flow came to -$57.6 million. The firm had $508.9 million in cash on hand in June. We know that due to the above-mentioned investment made by the BOE that the balance sheet will look better on Friday than it did at that time. Estimates for the firm's full year loss per share runs from -$0.31 up to -$0.16.

The Chart​

​Readers will see that the cup-with-handle pattern that we had discussed in the past is still technically intact. In fact, the pivot is now the recent high of $10.50 (I know, $10.52). However, I think it's time we worry more about defense than offense with this name. 

The shares will very likely flirt with their 50-day SMA this week. If that line cracks, it stands to reason that LAC will try to fill the gap created in September. That gap would require a tick as low as $3.23 to fill. Readers will note that the daily MACD is now postured quite bearishly.

My plan is this ahead of earnings: 

I will add as close to the 50-day SMA as possible. Should the line fail to hold, I will admit that my recent additions were a mistake and cut this position in half as well, but with the intention of adding once again close to that gap fill location. That gap would fill close to the 200-day SMA. If there is no support there, then there is no support. In the meantime, I think the 50-day line makes more sense than the pattern created pivot, which means that I have to drop my target price. My new target is $8, down from $12.

At the time of publication, Guilfoyle was long METC and LAC equity.