Lithium stock favorite Albemarle Corporation (NYSE: ALB) reported its Q3 quarterly earnings on November 3 after the market closed. The company returned earnings per share (EPS) of $7.50 and sales of $2.09bn. ALB's EPS beat FactSet analyst estimates of $6.97 but missed the sales consensus of $2.22bn. The company continues to expect strong demand for lithium, driven by the secular shift to electric vehicles, including OEM investments and public policy support.
What Does Albemarle Do?
Albemarle is a global specialty chemicals company with leading positions in lithium, bromine and refining catalysts. Albemarle supports companies in many of the world's largest and most critical industries, such as energy, electronics, and transportation.
Sustainability is at the heart of its business activities as Albemarle actively pursues a sustainable approach to managing its diverse global footprint of world-class resources.
This lithium stock is in a unique natural resource position, with derivatization capabilities and highly experienced and talented global teams. This combination allows Albemarle to execute an aggressive growth strategy for the business via collaborative customer relationships.
Ultimately Albemarle adds value and boosts performance as it strives to create a safer and more sustainable future.
The company was founded in 1993 and is headquartered in Charlotte, NC.
Albemarle (ALB) is a Lithium Stock
Albemarle is a top lithium stock because it's among the world's largest producers of lithium. The company’s lithium segment develops and manufactures basic lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and value-added lithium specialties and reagents.
ALB produces its lithium from salt brine deposits in Chile and the United States and from Hard Rock joint venture mines in Australia.
Albemarle is investing in China, Australia and North and South America and anticipates production up to 500,000 tons per year on a nameplate conversion capacity by 2030.
A year ago, ALB was producing 85,000 tons and expects to end 2022 with 200,000 tons of capacity, showing this lithium stock is following an exciting growth trajectory.
The company projects a healthy outlook for lithium demand based on the likelihood that demand for electric vehicle (EV) batteries is projected to increase.
During Q3, Albermarle’s net sales in lithium increased by 318% Y/Y to $1.5bn. This was due to higher pricing net of foreign exchange (+298%) related to renegotiated contracts and increased market pricing. Volume was also higher (+20%) related to the La Negra III/IV expansion in Chile and higher tolling volumes to meet growing customer demand.
Albemarle (ALB) is a Bromine Stock
Albemarle is also a global leader in the production of bromine used in flame retardants.
Albemarle’s bromine segment consists of bromine and bromine-based businesses, including products used in fire safety solutions and other specialty chemicals applications.
Q3 net sales in the bromine segment reached $354.9m, an uptick of 28% Y/Y, primarily due to increased pricing and higher volumes.
Tight market conditions continue to drive strong demand and favorable pricing across the product portfolio.
Adjusted EBITDA of $107m increased by $20.9m Y/Y as higher net sales were partially offset by higher costs for raw materials and freight.
The bromine earnings and volume outlook for the full year 2022 are expected to be at the low end of Albemarle’s previous outlook, reflecting emerging softness in some end markets such as consumer and industrial electronics and building and construction.
Early next year, Albemarle plans to realign its core Lithium and Bromine businesses into Energy Storage and Specialties segments, expected to be effective January 1, 2023.
Catalysts
Albemarle’s catalysts segment contains two product lines: clean fuel technologies, which are primarily composed of hydroprocessing catalysts, and heavy oil upgrading, which is composed of fluidized catalytic cracking catalysts and additives.
Albemarle's Catalysts segment continues to experience natural gas pricing pressure related to the war in Ukraine and rising raw material costs. As such, the company has tightened its Catalysts segment outlook for the full year. It is also considering options such as JV, spin-off, or sale.
For now, Albemarle holds its Catalysts segment as a separate wholly-owned entity with a separate brand identity. The business will be named Ketjen, after the business' original founder, which draws on the entrepreneurial heritage of Catalysts. Separating Catalysts out will allow ALB to focus on becoming a top lithium stock.
Q3 Earnings Results
Net Sales: $2.1bn (Up 152% Y/Y)
Net Income: $897.2m, Or $7.61 Per Diluted Share
Adjusted Diluted EPS: $7.50 (Up 614% Y/Y)
Adjusted EBITDA: $1.2bn (Up 447% Y/Y)
Q3 Highlights
Completed acquisition of the Qinzhou lithium conversion plant in Guangxi, China, for $200m on October 25, 2022
Kemerton II lithium conversion plant achieved mechanical completion and transitioned to the commissioning phase
Awarded US Department of Energy grant for US-based lithium concentrator facility to support domestic EV supply chain
Concluded strategic review of the Catalysts business; to be retained as a wholly owned subsidiary branded as Ketjen
Realigning core Lithium and Bromine businesses into Energy Storage and Specialties segments are expected to be effective January 1, 2023
Tightened full-year 2022 guidance, including net sales of $7.1bn - $7.4bn (>2x 2021) and adjusted EBITDA of $3.3bn - $3.5bn (3.7x 2021)
Albemarle CEO Kent Masters, said:
We had an outstanding quarter driven by strong demand for lithium-ion batteries,
As one of the world's largest producers of lithium, we are well positioned to enable the global energy transition. With our acquisition of the Qinzhou lithium conversion plant in China and mechanical completion of our Kemerton II expansion in Australia, we are on track to more than double our lithium conversion capacity compared to last year.
Our new segment structure is designed to support our ability to deliver volumetric growth in the energy storage arena as well as enable long-term growth in the lithium and bromine specialties markets.
Forward Guidance
Albemarle’s full-year 2022 outlook remains strong. It expects net sales to more than double and adjusted EBITDA to be nearly four times 2021 results.
However, it has slightly narrowed its net sales guidance from between $7.1bn and $7.5bn to between $7.1bn and $7.4bn.
Ongoing strength in lithium pricing and end markets offsets slightly lower expectations due to bromine-related weakness in key end markets, including consumer and industrial electronics and building and construction.
Adjusted EBITDA guidance has been tightened towards the higher end of previous expectations, and the company continues to expect to be free cash flow positive in 2022.
On November 28, 2022, Kristin M. Coleman will join Albemarle as executive VP, general counsel, and corporate secretary as Karen G. Narwold gets set to retire next year.
Coleman will join Albemarle from US Foods, an American food service distributor.
ALB Stock Financial Metrics
As of September 30, 2022, Albemarle had estimated liquidity of approximately $3.1bn, including approximately $1.4bn of cash and equivalents, $1bn in its revolver facility, $500m under its amended delayed draw term loan and $238.6m available on other credit lines. Total debt was $3.4bn, representing a net debt to adjusted EBITDA of approximately 0.9 times.
Albemarle, a $32bn company, has a price-to-earnings ratio (P/E) of 20.8 with a forward P/E of 10.6. Its price-to-book-value (P/BV) is 4.8, and ALB stock comes with a dividend yield of 0.58%.
Over the past year, ALB stock has traded between $169.93 and $308.24. Today it trades at around $274.56. Year-to-date, the Albemarle Corporation stock price is up 16%, while the S&P 500 is down -22.45% over the same period.
Analyst Ratings
After ALB released its Q3 results on Thursday, November 3, UBS adjusted its Albemarle price target to $297 from $308, maintaining a Neutral rating on the stock.
Meanwhile, Credit Suisse adjusted its ALB share price target to $200 from $196, maintaining its Underperform rating.
25 FactSet analysts have a consensus Overweight rating on ALB stock with a target share price of $313.56.
Albemarle Growth Potential and Risks
ALB revenues have grown around 4.4% over the past five years (CAGR). However, profits are down around 22.5% during this time.
The main reason for reduced margins is that Albemarle has very high capital expenditure (CapEx) costs, particularly in expanding its lithium production capacity.
Heavily investing in this way weighs on its free cash flow. However, Albemarle hopes to be free cash flow positive before the end of the year.
As the company reinvests to ensure its top spot as the world’s primary lithium producer and given the projected future gains for lithium sales, this could be interpreted as a positive way to utilize its cash. But that’s only valid if lithium demand soars as much as the CEO and others predict.
Rising competition is a concern, particularly from lithium start-ups. There are multiple lithium stocks with tiny market caps that could potentially bring their production online and cause the price of lithium to fall. Then again, these smaller companies could become an M&A target for Albemarle.
Is ALB Stock a Good Investment?
Mining stocks and raw material producers come with additional risk as they’re cyclical, and natural resource prices are affected by geopolitical or macroeconomic forces. They’re also capital intensive, as we can see is the case with lithium stock Albemarle.
Nevertheless, resources like lithium are in short supply while facing accelerating demand. Therefore, Albemarle is seeing increased interest from investors.
While paying a dividend is shareholder-friendly, Albemarle does have some history of share price dilution, which is not a shareholder-friendly practice.
Plus, the 0.58% dividend yield is rather low compared with other companies operating in the space and less than an S&P500 index tracker.
The ALB share price has seen some volatility this year and is likely to continue to fluctuate in line with the price of lithium as it’s very much considered to be a hot lithium stock.
All-in-all, Albemarle is a well-established company, connected with customers and financing in place. For investors looking for a way to invest in lithium stocks, ALB may prove a safer alternative than smaller stocks, but it has a high level of debt and is not immune to share price volatility.