Albemarle: Liontown Resources Acquisition Makes Strong Strategic Sense

Key Morningstar Metrics for Albemarle

• Fair Value Estimate: $350.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Albemarle Stock Update

Albemarle ALB announced its proposal to acquire Liontown Resources in an all-cash deal for AUD 3 per share, which amounts to roughly a $4.3 billion acquisition. The deal has been months in the making, as Albemarle first approached Liontown’s board of directors in October 2022 with a proposal to acquire the firm for AUD 2.20 per share.

We think the acquisition of Liontown makes strong strategic sense for Albemarle. Liontown is in the later construction phase of its first lithium hard rock project, Kathleen Valley, which is a larger, high-quality project in Western Australia that would provide Albemarle with a third hard rock resource to feed its downstream lithium chemicals plants. By securing a third resource, Albemarle should be able to meet management’s goal of 500,000 to 600,000 metric tons of lithium volumes by 2030.

While Albemarle had to raise its offer roughly 36% from the original price, we view the deal as value-neutral. We think the acquisition will close as planned in 2024, around the time Liontown is finishing construction on the first phase of Kathleen Valley.

Maintaining Fair Value Estimate on Albemarle Stock

After updating our model to incorporate the acquisition, we maintain our $350 per share fair value estimate as the acquisition is offset by high long-term volumes. We previously forecast Albemarle’s 2030 volumes would be closer to the low end of management’s 500,000-600,000 metric ton range, but we now forecast closer to the higher end. Our narrow moat rating is also unchanged.

At current prices, we view Albemarle shares as materially undervalued with the stock trading in 5-star territory and at more than 40% below our fair value estimate. We view Albemarle as one of our top lithium picks as the current valuation offers strong upside, while we see the firm as having relatively lower risk than the other lithium producers under our coverage.