A Mizuho analyst was left unimpressed by lithium compound company Albemarle's (ALB 1.65%) latest earnings and guidance and cut Mizuho's price target for the company by $25 to $105. The new target is roughly 14% below the current price, although the analyst kept a "neutral" rating on the stock.
Falling lithium prices
There's no avoiding the fact that the price of lithium will guide Albemarle's earnings prospects, and that's implied in Albemarle's guidance for 2024. Indeed, the following guidance was below the analyst consensus for 2024.
|
Albemarle 2024 Guidance based on different Average Lithium Market Prices ($/kg) |
|||
|---|---|---|---|
|
Metric |
$15 |
$20 |
$25 |
|
Net Sales |
$3.2 billion to $3.4 billion |
$3.8 billion to $4.1 billion |
$4.5 billion to $4.9 billion |
|
Adjusted EBITDA |
$0.8 billion to $0.9 billion |
$0.9 billion to $1 billion |
$1 billion to $1.2 billion |
Data source: Albemarle presentations. EBITDA is earnings before interest, taxation, depreciation, and amortization.
Where next for Albemarle and lithium
The price of lithium is down from about $59 per kg to $13.50 per kg over the last year, taking Albemarle's stock down 52.5% over the same period. It's a move partly driven by a declining near-term outlook for electric vehicle (EV) sales and production, not least in the world's largest EV market, China.
Image source: Getty Images.
With leading automakers scaling back EV production plans on weaker sale growth, it wouldn't be surprising if near-term pressure on lithium prices persists.
Still, there are consequences to sharp movements in commodity prices, and Albemarle's management believes the current fall in the price of lithium will lead to supply curtailments and investment pauses, resulting in supply tightness down the line.
Meanwhile, even if it's not at the pace envisaged earlier, EV demand is still growing and will outpace supply in the future. If Albemarle's management is right, then the company and the stock will see its best days ahead.
