Earnings from our top global lithium pick
Shares rise on improved free cash flow generation.
Mentioned: Albemarle Corp (ALB)
Key Morningstar metrics for Albemarle
- Fair Value Estimate: $200.00
- Morningstar Rating: ★★★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What we thought of Albemarle’s earnings
Albemarle’s ALB third-quarter adjusted EBITDA was up versus the prior-year quarter, as reduced unit production costs more than offset lower lithium prices. Albemarle shares were up Nov. 6 at the time of writing as the market reacted to free cash flow guidance above consensus estimates.
Why it matters: Albemarle’s realized lithium prices reflected multiyear low levels as prices bottomed in the middle of the year. Yet the company’s reduced unit costs drove profit growth. This supports our view that Albemarle’s low-cost lithium production will let the firm survive the pricing downturn.
- Management raised its free cash flow guidance for 2025 as lower unit costs reduced capital expenditures, and working capital management will drive free cash flow to exceed dividends in 2025. This aligns with our view that Albemarle can generate positive free cash flow despite low lithium prices.
The bottom line: We maintain our $200 per share fair value estimate for narrow-moat Albemarle. Our forecast that profits will bottom in 2025 is largely unchanged. We think Albemarle will be able to reduce its unit production costs from improved capacity utilization and its cost reduction plan.
- We view Albemarle shares as materially undervalued, with the stock trading in 5-star territory at less than half of our fair value estimate. Albemarle is our top pick to play an eventual lithium price recovery, given its low unit production costs that underpin our narrow-moat rating.
Big picture: We forecast 2025 will be the multiyear low for lithium prices as the market is oversupplied. However, in recent months, prices have risen slightly as global demand has increased faster than supply.
- We see demand continuing to rise from global EV sales growth and the buildout of utility-scale energy storage system batteries. Yet due to low prices, much of the supply growth has been delayed, and some supply has exited the market. This should support higher prices in the coming years.
