Morningstar | Albemarle Announces Lithium Volume Shift Throughout 2019; Maintaining $130 FVE With Outlook Intact
On March 28, Albemarle announced that it expects between 3,000 and 3,500 metric tons of lithium sales volumes to move from the first quarter of 2019 to the remaining three quarters of the year. The shift is due to a delay in getting battery-quality product qualified from the company's new Xinyu II plant in China as well as production issues in Chile related to weather delays from rain earlier in the year.However, Albemarle said it did not expect full-year 2019 lithium volumes to change as the Xinyu II plant has now been qualified and the company expects to make up reduced first-quarter volumes throughout the remainder of the year. Albemarle also reaffirmed full-year EPS guidance of $6.10 to $6.50 per share. With management's full-year guidance intact, we maintain our forecast for Albemarle. As a result, our $130 per share fair value estimate and narrow moat rating are unchanged. At current prices, Albemarle shares are significantly undervalued, trading in 4-star territory at a sizable discount to our fair value.
We interpret Albemarle's unchanged 2019 volume guidance as a sign that lithium demand remains strong. As a result, we continue to forecast high-teens demand growth in 2019.
We forecast declining lithium prices over the next few years to a low of $10,000 per metric ton (on an LCE Chilean export basis) from $13,000 per metric ton in 2018. However, to meet growing demand, lower-quality lithium supply needs to come on line. This will have a higher cost of production and drive prices higher to our long-term forecast prices 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."
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."
Albemarle is a global developer, manufacturer and marketer of chemicals across a range of end markets including energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. The company's segments include: Lithium, which develops and manufactures a range of basic lithium compounds and lithium specialties and reagents; Bromine Specialties, which includes products used in fire safety solutions and other chemicals applications; and Catalysts, which includes Clean Fuels Technologies, fluidized catalytic cracking catalysts and additives, and performance catalyst solutions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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