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Should You Snap Up Albemarle Stock After 14% Rally in a Week?
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Albemarle Corporation’s (ALB - Free Report) shares have gained 13.7% in the past week, outperforming the Zacks Chemical - Diversified industry’s rise of 3.2%. The rally has been largely driven by the recent reports that a major lithium producer from China is planning to cut production, raising hopes of a rebound in lithium prices, which have been going downhill amid rising supply after peaking in 2022.
Technical indicators show that ALB has been consistently trading below the 200-day simple moving average (SMA) since July 18, 2023. The stock broke out above the 50-day SMA last Wednesday, thanks to the reports that China-based Contemporary Amperex Technology Co., Limited could scale back lithium production due to oversupply concerns, but slipped below that key technical level last Friday.
Albemarle’s Shares Trade Below 50 & 200-Day SMA
Image Source: Zacks Investment Research
ALB is currently trading at a roughly 53.6% discount to its 52-week high of $188.47 reached on Sept. 15, 2023.
Let’s take a look at ALB’s fundamentals to analyze the stock better.
Lithium Project Expansion & Productivity Aid Albemarle
Albemarle is well-placed to gain from long-term growth in the battery-grade lithium market. The market for lithium batteries and energy storage remains strong, especially for electric vehicles (EVs), offering significant opportunities for the company to develop innovative products and expand capacity. Lithium demand is expected to grow on significant global EV penetration. ALB expects lithium demand to grow at a compound annual growth rate (CAGR) of 15-20% from 2024 to 2030.
The company is strategically executing its projects aimed at boosting its global lithium conversion capacity. It remains focused on investing in high-return projects to drive productivity. Healthy customer demand, capacity expansion and plant productivity improvements are supporting its volumes.
ALB saw higher sales volumes in its Energy Storage unit in the second quarter of 2024, driven by the ramp-up of lithium projects, including the La Negra expansion in Chile and the processing plant in Qinzhou, China. Albemarle is currently focusing on the optimization and ramp-up of the Kemerton I lithium hydroxide conversion plant in Australia. The Salar yield improvement project in Chile has also achieved a 50% operating rate. The Meishan lithium conversion facility in China has also delivered its first commercial sales ahead of schedule.
Albemarle is also taking aggressive cost-saving and productivity actions in the wake of tumbling lithium prices. The company delivered more than $150 million in restructuring and productivity benefits in the second quarter and is on track to surpass its initial productivity target for 2024 by roughly 50%. ALB is taking actions to maintain its competitive position, including the initiation of a comprehensive review of cost and operating structure, optimization of the conversion network and reduction of capital expenditure.
Strong Financial Health Supports ALB’s Capital Allocation
Albemarle remains committed to driving shareholder value by leveraging healthy cash flows and strong liquidity. At the end of the second quarter of 2024, ALB had liquidity of around $3.5 billion, including cash and cash equivalents of around $1.8 billion. Its operating cash flow was around $363 million, a nearly five-fold year-over-year increase.
The company remains focused on maintaining its dividend payout. It has raised its quarterly dividend for the 30th straight year. ALB offers a dividend yield of 1.8% at the current stock price. Its payout ratio is 33% (a ratio below 60% is a good indicator that the dividend will be sustainable). Backed by healthy cash flows and sound financial health, the company's dividend is perceived to be safe and reliable.
Soft Lithium Prices & Headwinds in Specialties Ail ALB Stock
Weaker lithium market prices are weighing on the company’s performance. ALB’s revenues tumbled roughly 40% year over year to $1,430.4 million in the second quarter, hurt by lower prices. Sales from its Energy Storage unit fell around 53% due to lower lithium market prices. Lithium prices nosedived more than 80% year over year in 2023, and the weakness continues this year. Prices have declined amid slowing demand growth for EVs, inventory glut and increased supply from China. The uncertain macroeconomic environment and high interest rates have weighed on demand. Weaker lithium prices are likely to continue to hurt the company’s results in the third quarter.
ALB’s Specialties unit is exposed to headwinds from demand and pricing weakness. Sales from the segment fell around 10% year over year in the second quarter. The segment faces demand headwinds in the consumer electronics market. The demand weakness is expected to continue in the third quarter. Albemarle has lowered its adjusted EBITDA outlook for the Specialties unit, factoring in slower-than-expected market recovery and higher logistics costs related to the ongoing conflict in the Middle East. It now sees an adjusted EBITDA of $210-$260 million for the segment.
The Zacks Consensus Estimate for 2024 for ALB has been revised downward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised lower over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at 70 cents, suggesting a year-over-year decline of 96.9%. Earnings are expected to register a decline of roughly 101.1% in the third quarter.
Image Source: Zacks Investment Research
ALB: An Expensive Stock
ALB is currently trading at a forward 12-month earnings multiple of 36.11X, a roughly 129.8% premium to the peer group average of 15.71X, and considerably higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
Image Source: Zacks Investment Research
Albemarle Stock Underperforms Industry and S&P 500
ALB’s price performance has been lackluster this year, partly reflecting the significant decline in lithium prices. Its shares have lost 39.5% year to date, underperforming the industry’s 4.7% decline and the S&P 500’s rise of 17.7%. Its peers, Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) , Arcadium Lithium plc (ALTM - Free Report) and Rio Tinto Group (RIO - Free Report) , have lost 36.5%, 86.4% and 16%, respectively, over the same period.
ALB’s YTD Stock Price Performance
Image Source: Zacks Investment Research
Conclusion: Hold Onto ALB Stock for Now
Albemarle is benefiting from higher lithium volumes on project ramp-ups and actions to boost its global lithium conversion capacity and productivity actions. ALB is well-placed to capitalize on the significant growth opportunity in the battery-grade lithium market underpinned by the global shift toward EVs. However, a significant pullback in lithium prices, softness in the Specialties unit and declining earnings estimates could dampen its prospects. Its stretched valuation also might not offer an attractive entry point at this time. Considering these factors, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
Image: Bigstock
Should You Snap Up Albemarle Stock After 14% Rally in a Week?
Albemarle Corporation’s (ALB - Free Report) shares have gained 13.7% in the past week, outperforming the Zacks Chemical - Diversified industry’s rise of 3.2%. The rally has been largely driven by the recent reports that a major lithium producer from China is planning to cut production, raising hopes of a rebound in lithium prices, which have been going downhill amid rising supply after peaking in 2022.
Technical indicators show that ALB has been consistently trading below the 200-day simple moving average (SMA) since July 18, 2023. The stock broke out above the 50-day SMA last Wednesday, thanks to the reports that China-based Contemporary Amperex Technology Co., Limited could scale back lithium production due to oversupply concerns, but slipped below that key technical level last Friday.
Albemarle’s Shares Trade Below 50 & 200-Day SMA
ALB is currently trading at a roughly 53.6% discount to its 52-week high of $188.47 reached on Sept. 15, 2023.
Let’s take a look at ALB’s fundamentals to analyze the stock better.
Lithium Project Expansion & Productivity Aid Albemarle
Albemarle is well-placed to gain from long-term growth in the battery-grade lithium market. The market for lithium batteries and energy storage remains strong, especially for electric vehicles (EVs), offering significant opportunities for the company to develop innovative products and expand capacity. Lithium demand is expected to grow on significant global EV penetration. ALB expects lithium demand to grow at a compound annual growth rate (CAGR) of 15-20% from 2024 to 2030.
The company is strategically executing its projects aimed at boosting its global lithium conversion capacity. It remains focused on investing in high-return projects to drive productivity. Healthy customer demand, capacity expansion and plant productivity improvements are supporting its volumes.
ALB saw higher sales volumes in its Energy Storage unit in the second quarter of 2024, driven by the ramp-up of lithium projects, including the La Negra expansion in Chile and the processing plant in Qinzhou, China. Albemarle is currently focusing on the optimization and ramp-up of the Kemerton I lithium hydroxide conversion plant in Australia. The Salar yield improvement project in Chile has also achieved a 50% operating rate. The Meishan lithium conversion facility in China has also delivered its first commercial sales ahead of schedule.
Albemarle is also taking aggressive cost-saving and productivity actions in the wake of tumbling lithium prices. The company delivered more than $150 million in restructuring and productivity benefits in the second quarter and is on track to surpass its initial productivity target for 2024 by roughly 50%. ALB is taking actions to maintain its competitive position, including the initiation of a comprehensive review of cost and operating structure, optimization of the conversion network and reduction of capital expenditure.
Strong Financial Health Supports ALB’s Capital Allocation
Albemarle remains committed to driving shareholder value by leveraging healthy cash flows and strong liquidity. At the end of the second quarter of 2024, ALB had liquidity of around $3.5 billion, including cash and cash equivalents of around $1.8 billion. Its operating cash flow was around $363 million, a nearly five-fold year-over-year increase.
The company remains focused on maintaining its dividend payout. It has raised its quarterly dividend for the 30th straight year. ALB offers a dividend yield of 1.8% at the current stock price. Its payout ratio is 33% (a ratio below 60% is a good indicator that the dividend will be sustainable). Backed by healthy cash flows and sound financial health, the company's dividend is perceived to be safe and reliable.
Soft Lithium Prices & Headwinds in Specialties Ail ALB Stock
Weaker lithium market prices are weighing on the company’s performance. ALB’s revenues tumbled roughly 40% year over year to $1,430.4 million in the second quarter, hurt by lower prices. Sales from its Energy Storage unit fell around 53% due to lower lithium market prices. Lithium prices nosedived more than 80% year over year in 2023, and the weakness continues this year. Prices have declined amid slowing demand growth for EVs, inventory glut and increased supply from China. The uncertain macroeconomic environment and high interest rates have weighed on demand. Weaker lithium prices are likely to continue to hurt the company’s results in the third quarter.
ALB’s Specialties unit is exposed to headwinds from demand and pricing weakness. Sales from the segment fell around 10% year over year in the second quarter. The segment faces demand headwinds in the consumer electronics market. The demand weakness is expected to continue in the third quarter. Albemarle has lowered its adjusted EBITDA outlook for the Specialties unit, factoring in slower-than-expected market recovery and higher logistics costs related to the ongoing conflict in the Middle East. It now sees an adjusted EBITDA of $210-$260 million for the segment.
ALB’s Falling Earnings Estimates Reflect Negative Sentiment
The Zacks Consensus Estimate for 2024 for ALB has been revised downward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised lower over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at 70 cents, suggesting a year-over-year decline of 96.9%. Earnings are expected to register a decline of roughly 101.1% in the third quarter.
ALB: An Expensive Stock
ALB is currently trading at a forward 12-month earnings multiple of 36.11X, a roughly 129.8% premium to the peer group average of 15.71X, and considerably higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
Albemarle Stock Underperforms Industry and S&P 500
ALB’s price performance has been lackluster this year, partly reflecting the significant decline in lithium prices. Its shares have lost 39.5% year to date, underperforming the industry’s 4.7% decline and the S&P 500’s rise of 17.7%. Its peers, Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) , Arcadium Lithium plc (ALTM - Free Report) and Rio Tinto Group (RIO - Free Report) , have lost 36.5%, 86.4% and 16%, respectively, over the same period.
ALB’s YTD Stock Price Performance
Conclusion: Hold Onto ALB Stock for Now
Albemarle is benefiting from higher lithium volumes on project ramp-ups and actions to boost its global lithium conversion capacity and productivity actions. ALB is well-placed to capitalize on the significant growth opportunity in the battery-grade lithium market underpinned by the global shift toward EVs. However, a significant pullback in lithium prices, softness in the Specialties unit and declining earnings estimates could dampen its prospects. Its stretched valuation also might not offer an attractive entry point at this time. Considering these factors, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.