Commodities & Metals

Is Albemarle Back After Key Analyst Upgrade?

Albemarle Corp. (NYSE: ALB) stock made a handy gain on Thursday after the company received an analyst upgrade. While the energy sector has been the primary focus of the economy recently, with the Colonial Pipeline hack, lithium provides an avenue for energy independence in the form of batteries and electric vehicles (EVs). RBC takes a closer look at this.

RBC upgraded the stock to Sector Perform from Underperform and raised the price target from $135 to $168, implying upside of 8.7% from the most recent closing price of $154.60.

Considering the recent lithium price improvement and signs of stronger EV demand, RBC made this upgrade. As EV demand continues to recover and more auto producers increase EV model lineups, the brokerage firm believes Albemarle will benefit from increased volume and pricing.

While the initial downgrade to Underperform last October was based on RBC’s view that valuations were outpacing weakened lithium fundamentals, the firm now sees the tide turning as lithium prices show firmer signs of recovery from the December lows and greater demand due to increased EV demand. The firm also believes the temporary one-year price concession likely is behind, given the tighter supply environment.

RBC further detailed in the report:

We note that NA lithium carbonate and hydroxide prices are now up to $9,500/ton and $11,500/ton, respectively, from the December 2020 lows of $7,150/ton and $10,150/ton. Based on Benchmark Minerals, most of the pricing upside is coming from lithium supply tightness along with strong EV production demand in China and Europe (up 156.2% y/y in Europe).

As a result of higher lithium pricing and volume growth in the second half of the year, RBC is raising its fiscal 2021 EBITDA and earnings per share estimates to $835 million and $3.45 from $830 million and $3.40. Consensus estimates are calling for $3.59 per share in earnings and $3.24 billion in revenue for the fiscal full year.

Excluding Thursday’s move, Albemarle stock had outperformed the broad markets with a gain of about 161% in the past 52 weeks. However, year to date, the share price is only up about 5%.

Albemarle stock traded up about 1% on Thursday to $156.76, in a 52-week range of $56.17 to $188.35. The consensus price target is $159.57.