Morningstar | No Changes to Our Outlook as SQM Completes CEO Transition; Shares Remain Materially Undervalued
On Jan. 8, SQM announced that its planned CEO transition has been completed. Former CEOÂ Patricio de Solminihac has retired, and former CFO Ricardo Ramos Rodriguez has assumed the CEO role. The transition was announced in mid-2018 and, with no changes to our outlook, we maintain our $65 per share fair value estimate.Under Solminihac's leadership, SQM focused on the development and expansion of low-cost lithium production as well as capacity expansions for the company's low-cost iodine and nitrates production. We expect Ramos to pursue a similar strategy and, as such, we maintain our Standard stewardship rating for SQM. Our narrow-moat rating, based on SQM's cost-advantaged lithium, iodine, and specialty fertilizer production, also remains intact.
At current prices, we view SQM as materially undervalued, with shares trading in 5-star territory. We continue to contend that the market is implying overly bearish expectations for long-term lithium prices. Due to our above-consensus electric vehicle outlook, we forecast 19% annual demand growth for lithium over the next decade. This will ultimately require higher-cost lithium supply to come online to meet demand. As such, we continue to forecast a long-term lithium price of $12,000 per metric ton.
For more information on our lithium outlook, please see our Nov. 30 report, "Put the Pedal to the Metal for Lithium Stocks: SQM and Albemarle offer attractive upside given our above-consensus electric vehicle adoption forecast." For more information on our electric vehicle forecast, please see our Sept. 24 Observer, "Electric Vehicle Sales in China and Europe Will Leave U.S. in the Dust, Driving Above-Consensus Global Adoption Rates."
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