ALB Stock Bullish on High Lithium Demand

With the stock market getting crushed and no real reason yet for it to rebound, it’s tough to find stocks with fabulous upside potential. It's tougher still to find ones whose dividends are increasing. That makes an electric vehicle (EV) industry stock like Albemarle Corporation (NYSE:ALB) all the more compelling.

Many investors wouldn’t entertain Albemarle stock because it’s currently trading around $281.00. Then again, in an environment with macroeconomic headwinds, you’re not going to find tiny EV stocks that are doing exceptionally well. You’ll certainly find some that are beaten down and have great potential, but not a lot of clear winners.

That’s why investors might want to look at bigger, more established EV-related companies like Albemarle Corporation. The global specialty chemical company, which has leading positions in lithium, bromine, and refining catalysts, has been having a great year.

With the adoption of EVs picking up steam both here and abroad, the rush is on for EV makers to get their hands on as much lithium as possible.

With the world demand for lithium expected to triple between 2020 and 2025, there could be lithium shortages by 2025. (Source: “Electric Cars Fend Off Supply Challenges to More Than Double Global Sales,” International Energy Agency, January 30, 2022.)

Roughly two billion EVs will need to be on the roads by 2050 for the world to hit net-zero emissions. Last year, EV sales were just 6.6 million, up from three million in 2020. That’s a lot of EVs needed over the next 28 years, and of course they’ll need lithium.

A lithium-ion battery pack for a single EV contains approximately eight kilograms of lithium. In 2021, global lithium production totaled 100,000 tons. Global reserves stand at about 22 million tons. (Source: “Mineral Commodity Summaries 2022,” U.S. Department of the Interior, January 31, 2022.)

The current global reserves of lithium are sufficient to produce about 2.5 million batteries. But the demand for lithium comes from more than just the road EV industry. The metal is used in batteries that are found in laptop computers, mobile phones, earbuds, smartwatches, e-cigarettes, pacemakers, airplanes, and trains.

This helps explain why lithium prices have soared by more than 500% since the start of 2021 and why there's a global race to find more. It also helps explain the meteoric rise of some of the biggest lithium producers.

Albemarle Corporation has been having a wonderful year. As of this writing, ALB stock is up by:

• Five percent over the last month
• 20% over the last three months
• 47% over the last six months
• 21% year-to-date
• 22% year-over-year

Albemarle stock is also up by 205% over the last two years and 407% over the last 2.5 years.

The high demand for lithium and other compounds like bromide is helping juice Wall Street's forecasts for ALB stock. Analysts have provided a 12-month share-price target of $305.20 to $440.00, which suggests potential gains in the range of 8.5% to 56.6%.

Chart courtesy of StockCharts.com

Albemarle Corporation Overview

Albemarle develops, manufactures, and markets engineered specialty chemicals worldwide. The company has customers in 100 countries. (Source: “Albemarle Investor Presentation: Oct. 2022,” Albemarle Corporation, last accessed November 7, 2022.)

The company operates through three business segments: Lithium, Bromine Specialties, and Catalysts.

Albemarle Corporation's Lithium division, which is its biggest segment, develops advanced materials for a wide range of industries and end markets.

The company obtains its lithium through the solar evaporation of pools in the Salar de Atacama salt flat in Chile and in Silver Peak, NV. At its other locations, Albemarle processes the material further, depending on the markets it’s serving. Lithium brine is 10 times saltier than seawater and cannot be used for human consumption or agricultural use.

The Lithium segment offers a wide range of lithium compounds that are used in lithium batteries for automobiles and consumer electronics.

Albemarle Corporation's Bromine Specialties segment offers products used for fire safety and other specialty chemical applications. Products from this segment are used by chemical manufacturers and processors, drilling and oil service companies, beef and poultry processors, photographic companies, energy producers, water treatment companies, and other specialty chemical companies.

Albemarle Corporation sources its bromine from Arkansas and the Dead Sea. At its current production level, the Arkansas location can produce bromine for more than 50 years. The Dead Sea is believed to have indefinite quantities of brine.

Albemarle Corporation's Catalysts segment has three main product lines: clean fuel technologies; fluidized catalytic cracking catalysts and additives; and performance catalyst solutions. This segment serves the energy storage, petroleum refining, consumer electronics, construction, automotive, lubricant, pharmaceutical, crop protection, and custom chemistry services markets.

During the second quarter, the company announced plans to build integrated lithium operations in the U.S., including an 800-acre spodumene mine in Kings Mountain, NC. (Source: “Albemarle Reports Strong Second-Quarter Sales Growth, Raises Guidance,” Albemarle Corporation, August 3, 2022.)

The previous owners of the property mined it from the 1940s through the 1980s but shut it down to focus on cheaper lithium sources in South America. But with lithium prices surging, Albemarle Corporation is looking to reopen the mine.

The company also announced plans to build a lithium conversion facility in the southeastern U.S. by 2029. The facility would process lithium ore from the company’s Kings Mountain mine. The plan is for the factory to process up to 100,000 tons of lithium annually.

Strong Second-Quarter Results & Raised 2022 Guidance

For the second quarter ended June 30, Albemarle announced that its net sales increased by 91% year-over-year to $1.5 billion. (Source: Ibid.)

The company's lithium sales in the second quarter increased by 178% year-over-year to $891.5 million, its bromine sales climbed by 35% to $377.8 million, and its catalysts sales grew by 42% to $210.3 million.

Albemarle Corporation's net income in the second quarter was $406.8 million, or $3.46 per share. Its adjusted diluted earnings per share (EPS) exploded by 288% to $3.46. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 214% to $610.0 million.

For fiscal 2022, Albemarle Corporation expects to report:

• Net sales of $7.1 to $7.5 billion, up from its previous guidance range of $5.8 billion to $6.2 billion
• Adjusted EBITDA of $3.2 to $3.5 billion, up from its previous guidance range of $2.2 to $2.5 billion
• Diluted EPS of $19.25 to $22.25, up from its previous guidance range of $12.30 to $15.00

Analyst Take

What’s not to like about Albemarle stock? Albemarle Corporation controls a large and growing portion of the world’s lithium production market and will be expanding its operations to take advantage of the high demand for lithium.

Despite the turbulent market, the company delivered another strong quarter of financial results, thanks to high demand for—and prices of—lithium and bromine. This also allowed the company to raise its full-year guidance.

Should these market dynamics persist (and there’s no reason for them to slow down), 2023 should be another great year for ALB stockholders.