Morningstar | Maintaining $64 FVE as SQM Provides High-Level Commentary on 1Q; Shares Trading in 5-Star Territory
On April 26, SQM's management team provided some high-level commentary on upcoming first-quarter results that were generally consistent with our full-year expectations. With no changes to our outlook, we maintain our $64 per share fair value estimate and narrow moat rating. At current prices, we view SQM as materially undervalued, with the stock trading in 5-star territory.We contend that the market is taking a shortsighted approach when it comes to lithium prices. Although we forecast lower lithium prices over the next few years, we maintain our long-term view that lithium demand from greater electric vehicle adoption will surpass new capacity that has recently come on line. As a result, lower-quality, higher-cost lithium supply will be needed to meet demand, driving lithium carbonate prices to our $12,000 per metric ton long-term price forecast.
In the announcement, SQM reported that lithium prices in the first quarter of 2019 were over 10% lower than the first quarter of 2018. This is in line with our forecast that SQM's realized lithium prices would fall around 10% this year. The company also maintained its full-year outlook for lithium sales volumes just under 50,000 metric tons.
Additionally, SQM reported that iodine prices had surpassed $25 per kilogram, which represents a low-single-digit increase over average 2018 prices. We forecast a mid-single-digit price increase for iodine in 2019 and expect higher prices as the year progresses. In addition to higher prices, we forecast that the iodine segment will benefit from stronger volumes, as SQM ramps up its new capacity.
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."
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