Livent Earnings: New Volume Growth Is Delayed Into 2024

Our key takeaway from Livent’s LTHM third-quarter results is the company’s decision to delay its volumes growth in 2023. We updated our model to assume lower volumes throughout our 10-year forecast period. We also updated our model for higher capital expenditures and lower near-term lithium prices. As a result, we reduce our Livent fair value estimate to $38 per share from $42. Our narrow moat rating is unchanged.

Livent shares were down 5% in after-hours trading at the time of writing on management’s guidance cut, which driven by lower volumes as Livent delayed the production ramp-up of its new capacity into 2024 from 2023. However, at current prices, we view Livent shares as materially undervalued, with the stock trading in 5-star territory and less than 40% of our updated fair value estimate.

We think the market is concerned that lithium spot prices, which inform contract prices, will fall further to end-2023 and into 2024 due to oversupply concerns. We disagree with this view and expect prices will rise in 2024 as battery producer inventory destocking runs its course and new supply is delayed. In recent days, multiple top seven lithium producers have announced supply delays or production cuts in response to lower prices and lower demand. We think this will result in the market balancing and returning to a structural undersupply in 2024, leading to higher prices.

Our base case assumes lithium prices average just above $30,000 per metric ton from 2023 to 2030. However, when we run a marginal cost scenario, our Livent fair value estimate would be $22, still well above the current stock price. In our marginal cost scenario, we assume lithium prices average $20,000 per metric ton, which is our current estimate of the marginal cost of production on an all-in sustaining cost basis. As a result, we see a strong margin of safety in Livent and view the current share price as an excellent entry point for long-term investors.