Commodities & Metals

More Upside for Albermarle on the Lithium Train

The rise of electric vehicles has become very impressive in recent years, but for that rise to continue in the United States, it will require many tons of lithium and other specialty materials to manufacture all of the batteries to power the electric engines. Albemarle Corp. (NYSE: ALB) is among the top lithium players in America, even if it also operates in bromine specialties and in other catalysts.

Albermarle frequently is cited in the media and by analysts for its exposure to lithium upside. Independent research firm Argus has just doubled down on its bullish views of this company by reiterating its Buy rating and raising its target price to $140 from $98.

The company recently said that its adjusted net income of $98.3 million, or $1.09 per share, for the third quarter was down from $155.1 million, or $1.53, in the same period a year earlier. This drop was due to the pandemic effects, but Albermarle also beat the Argus estimate of $0.71 per share and the consensus estimate of $0.78. Its net revenue declined 15% from a year ago to $747 million.

Where the upside call for lithium gets interesting is that its lower earnings were said to reflect weaker results in its lithium business because of lower contract and spot pricing. The other cause for weakness was in the catalyst division on the back of reduced fuel demand.

Argus has raised 2020 earnings estimate to $3.81 per share from $3.43 to reflect the third-quarter results. According to the report, this estimate is still near the low end of Albermarle’s own guidance range. The consensus forecast is said to be up at $3.82 per share.

While 2020 was moved higher, Argus is keeping its 2021 per-share estimate of $4.32, with an expected boost in demand for lithium from electric vehicle batteries. The firm’s target is higher than the 2021 consensus estimate of $4.11.

Albermarle raised its quarterly dividend earlier in 2020, despite the impact of the pandemic. Its current dividend yield is only about 1.3%, and the $1.54 annualized payout would be roughly 25% of the 2019 earnings from before the pandemic hit.

Bill Selesky of Argus talked up lithium looking forward for the company in this report:

Despite the ongoing impact of the pandemic, we expect Albemarle to generate an increasing percentage of sales from its lithium operations, driven by strong demand for lithium in electric vehicle batteries, as well as by demand from manufacturers of portable consumer electronics and from the glassmaking industry. We look for strength in this segment to result in steady EPS growth over the next several years, despite the inherent cyclicality of the company’s overall business. In all, we expect 10% compound annual growth in the lithium market between 2020 and 2025, and look for Albemarle to be a major beneficiary of this growth.

While the lithium sector has seen choppy reports, even before the COVID-19 pandemic caused the recession, investors have been clamoring for the best bets to invest in lithium and related materials that will be needed to power all of the electric batteries for cars and more electronics and systems in the years and decades ahead.

Friday’s upgraded target is not the only recent upgrade. Citigroup raised its Neutral rating to Buy just on November 9, and its price target was raised to $132 from $99 too. Another upgrade was seen from HSBC on October 21, with the firm raising its rating from Hold to Buy with a $121 price target.

It is always good to see if there is another side of the coin as well for some balance. BofA Securities reiterated its Underperform rating on November 6, but the firm did still raise its price objective to $78 from $69. RBC Capital Markets downgraded Albermarle to Underperform from Sector Perform and cut its target price to $78 from $80 on October 14.

Shares of Albermarle trade up just 0.1% at $118.80 on Friday. Its 52-week trading range is $48.89 to $120.81, and the Refinitiv consensus price target is closer to $95.