After Earnings, Is Albemarle Stock a Buy, a Sell, or Fairly Valued?

Albemarle ALB released its first-quarter earnings report on May 1. Here’s Morningstar’s take on Albemarle’s earnings and stock.

Key Morningstar Metrics for Albemarle

• Fair Value Estimate: $200.00
• Morningstar Rating: ★★★★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Albemarle’s Q1 Earnings

Albemarle reported sequentially improving adjusted EBITDA as unit cost reductions were partially offset by lower lithium prices. Albemarle shares were up on May 1, as the company maintained its outlook for breakeven free cash flow for the year.

Why it matters: Lithium is Albemarle’s largest business, generating the majority of profits. Lithium prices remain at cyclically low levels due to oversupply, weighing on profits and free cash flow.

• Albemarle aims to reduce unit production costs. This should be achievable through improved capacity utilization at its lithium refining assets. The company also cut capital expenditures in order to reverse negative free cash flow generation.

The bottom line: We reduced our fair value estimate to $200 per share from $225. The reduction is due to slightly lower medium-term lithium prices as we assume Albemarle’s contracts that come up for renegotiation in 2026 will likely see price floors reset amid low spot prices.

• At current prices, we view Albemarle shares as materially undervalued with the stock trading at less than 30% of our updated fair value estimate. For long-term investors who can withstand lithium’s price volatility, we see strong upside.
• We see little impact on Albemarle from tariffs. Most of Albemarle’s lithium is sold outside the US and both lithium and lithium concentrate (spodumene) are exempt from US tariffs. We see a risk of a secondary impact from an economic slowdown resulting in lower EV sales.

Big picture: Over the long term we remain bullish on lithium. We forecast growing global EV sales and the buildout of energy storage system batteries will drive lithium demand to 3.2 million metric tons by 2030 from 1.2 million in 2024.

• The lithium market is currently oversupplied, but we expect demand will grow faster than supply in 2025 and 2026. This will cause the supply deficit to shrink. We expect the market will return to balance by the end of 2026, driving prices higher.

Fair Value Estimate for Albemarle

With its 5-star rating, we believe Albemarle’s stock is significantly undervalued compared with our long-term fair value estimate of $220 per share. The reduction is due to slightly lower medium-term lithium prices as we assume Albemarle’s contracts that come up for renegotiation in 2026 will likely see price floors reset amid low spot prices. We assume roughly a 10% weighted average cost of capital. We use a multiple of 11.5 times midcycle EBITDA to value free cash flows generated beyond our 10-year explicit forecast horizon.

Lithium will remain Albemarle’s largest business. We expect lithium prices will remain at cyclically low levels into 2026. Lithium carbonate spot prices, which tend to be a leading indicator of contract prices, are currently around $9,000 per metric ton (based on published indexes), down from $75,000 at the end of 2022. Prices fell due to rapid supply growth from lower qualty resources, particularly lepidolite in China. However, as demand growth remains strong and global supply growth slows, we expect the market will move from oversupply back to balance by the end of 2026.

Read more about Albemarle’s fair value estimate.

Economic Moat Rating

We award a narrow economic moat rating to Albemarle for the company’s strong and durable cost advantage in lithium and bromine production. Globally, lithium carbonate is produced from either lower-cost evaporation of brine or higher-cost mining of spodumene minerals. Albemarle has a cost advantage in lithium carbonate production due to its lucrative brine assets in the Salar de Atacama in Chile, which produce lithium at the lowest cost globally, excluding royalties.

Read more about Albemarle’s economic moat.

Financial Strength

Albemarle’s financial health is currently strained. As of March 31, management reported net debt/adjusted EBITDA was 2.4 times. While this is within management’s long-term target of less than 2.5, we expect this ratio will weaken in the coming quarters as low lithium prices weigh on adjusted EBITDA and debt is needed to fund the dividend.

We forecast adjusted EBITDA will fall in 2025 as lithium prices remain at cyclically low levels. Amid low lithium prices and negative free cash flow generation, the company plans to greatly reduce capital expenditures by over 50% in 2025. Albemarle also plans to reduce operating expenses. As its new plants ramp up and cost reductions are implemented, we expect Albemarle could begin to see sequentially improved EBITDA even if lithium prices remain lower for longer. However, we expect free cash flow will remain negative in 2025. Including dividend payments, Albemarle will need to fund the shortfall with debt. This will likely raise leverage ratios throughout the year. While we see near-term balance sheet weakness, we think the company could generate positive free cash flow by 2026 even if prices remain at current cyclically low levels.

Read more about Albemarle’s financial strength.

Risk and Uncertainty

We assign Albemarle a Very High Uncertainty Rating. The biggest risk for Albemarle is volatile lithium prices. Prices could decline if EV demand grows more slowly than expected or new low-cost supply ramps up quicker than demand. New batteries, such as sodium-ion, could overtake lithium as the preferred energy storage resource.

Lithium production could ramp up more quickly than demand warrants if producers bring too much supply to the market. Prices could also remain lower for longer if major battery producers or Chinese state-owned enterprises continue to invest in higher-cost lithium resources to keep the lithium market oversupplied. New lithium production technologies could also alter the cost curve, such as direct lithium extraction. Albemarle faces execution risk in ramping up its new lithium projects, including production delays and cost overruns. Albemarle is also subject to political risk in Chile. President Gabriel Boric wants the Chilean government to own a majority stake in all projects. If this occurs, Albemarle could be forced to trade a 50.1% stake to the Chilean government to extend its lease when it expires in 2043.

Read more about Albemarle’s risk and uncertainty.

ALB Bulls Say

• Albemarle has top-tier lithium assets through its brine operations in Chile and spodumene hard-rock operations in Western Australia, which are among the lowest-cost sources of lithium production globally.
• Lithium prices will rebound then remain well above the marginal cost of production through at least the remainder of the decade, leading to excess profits and return on invested capital for Albemarle.
• Albemarle has low-cost bromine production through its highly concentrated brines in the Dead Sea and Arkansas

ALB Bears Say

• Lithium prices will fall and remain lower for longer as new supply growth will outpace demand, weighing on profitability. Albemarle’s plans to increase its lithium production capacity will prove value-destructive in the wake of lower prices.
• Albemarle’s negative free cash flow generation will result in the company needing to raise equity in the near future, diluting current shareholders.
• Chile’s plan to nationalize lithium could result in Albemarle being forced to trade a majority stake to the government to renew its lease, destroying shareholder value

This article was compiled by Jacqueline Walker.