Morningstar | Albemarle Falls 5% on Analyst Downgrade; We Maintain Our $130 FVE With Outlook Unchanged
On Jan. 15, a sell-side broker reduced its target price for Albemarle on the expectation that near-term earnings results would come in below expectations. As we write, shares are down roughly 5%. We note that our near-term forecast includes slightly lower lithium prices resulting in lower profits as we expect volatility in the lithium market over the near term.However, we continue to see long-term value in Albemarle's lithium operations. With our outlook unchanged, we maintain our $130 fair value estimate for narrow-moat Albemarle. We view Albemarle as significantly undervalued, with shares trading in 5-star territory.
Over the long term, Albemarle is well positioned to take advantage of growing lithium demand from increased electric vehicle adoption and energy storage capacity. Due to our above-consensus electric vehicle outlook, we forecast 19% annual demand growth for lithium over the next decade.
As demand for both lithium carbonate and lithium hydroxide grows, Albemarle should be able to grow profits as a cost-advantaged producer of both downstream lithium chemicals. As a result, we continue to forecast that Albemarle will generate long-term lithium EBITDA margins above 40%, which will drive shareholder value as lithium grows to generate over 75% of profits, up from around 50% in 2018.
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."
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.
We have operations in 27 countries.
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