Albemarle Earnings: We Expect Improved Results In the Rest of Year Following Cyclically Low Profits

Key Morningstar Metrics for Albemarle

• Fair Value Estimate: $275.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Albemarle’s Earnings

Albemarle’s ALB first-quarter results reflected cyclically low lithium prices and temporarily high unit production costs. As a result, adjusted EBITDA fell 83% versus the prior-year quarter. We still believe lithium prices will rise in 2024 and are confident in Albemarle’s ability to reduce its unit production costs throughout the year. After updating our model to incorporate first-quarter results, we maintain our $275 fair value estimate and narrow moat rating.

Albemarle shares were up at the time of writing, as the market reacted positively to its outlook for improving lithium profits, even if prices remain flat for the rest of the year. At current prices, we view the stock as materially undervalued, with shares trading at less than 45% of our fair value estimate and in 5-star territory. The stock remains one of our top lithium picks, as we think investors will benefit from our outlook for higher lithium prices. We believe much of the bad news is already priced into Albemarle and its US-listed lithium peers. Lithium prices have slightly risen since hitting a multiyear low in February. We expected prices to stabilize in the first half of 2024 and rise in the second half as demand growth overtakes supply, leading to tighter market conditions.

In the longer term, we expect rising electric vehicle sales and the buildout of utility-scale batteries will drive continued double-digit annual lithium demand growth, generally leading to undersupply for much of this decade. We still forecast lithium carbonate prices will average $25,000 per metric ton on an index-reference basis, above our marginal cost of production estimate of $20,000.