What happened
After setting a 52-week high on Aug. 25, Albemarle (ALB +0.67%) stock tumbled this week and shed 10.5% at its lowest point in trading in five days, according to data provided by S&P Global Market Intelligence. As of noon Friday, the lithium stock was down 9.2% for the week.
Demand for lithium is soaring, prices are shooting higher again, and Albemarle's restructuring plans, announced this week, could eventually unlock greater value for shareholders. Why's the stock falling? It appears Albemarle fell with the rest of the market, which also explains why the stock was trading higher on Friday.
So what
The markets sank this week on a sell-off in tech stocks after the Federal Reserve warned of more interest rate increases coming as it strives to tame inflation. Ripple effects of the broader market weakness were felt across stocks from various sectors and industries, including Albemarle.
Albemarle, otherwise, is on strong footing, and its key end markets are as robust as they can be.
Lithium carbonate prices edged higher this week and are now barely 1% off from their record peak in March, according to data from Trading Economics. Lithium prices have jumped nearly 500% since the beginning of 2021.
NYSE: ALB
Key Data Points
While sales of electric vehicles (EV) in large markets like China continue to rise, a severe drought and power crisis in the nation has hit production in key lithium-producing regions like Sichuan. As that could disrupt supply further in an already tight lithium market, prices moved higher in response. Since Albemarle generates the bulk of its sales from lithium, it should benefit from rising lithium prices. The company also deals in bromine and petrochemical catalysts.
Notably, Albemarle's latest move could add even more value to its business.
Now what
Albemarle made a big announcement this week that broadly includes three parts. The company will:
- Separate its catalysts business into a new entity.
- Combine bromine and lithium specialities into one business unit called Albemarle Specialties.
- Create a new business unit called Albemarle Energy Storage that'll focus on lithium-ion batteries and energy storage.
Albemarle's outlook for the year pretty much reveals the rationale behind the restructuring. While it expects adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) for the lithium business to grow a whopping 500% to 550% this year, it expects bromine adjusted EBITDA to grow 25% to 30% in 2022. In sharp contrast, Albemarle foresees catalysts' adjusted EBITDA falling 25% to 65% this year on rising energy prices.
It makes sense for the company, then, to separate its catalysts business, which is turning out to be a laggard and is prone to fluctuations in the energy markets. At the same time, lithium dominates Albemarle's restructuring plans, and rightfully so given how profitable lithium is turning out to be. Albemarle will start reporting numbers under the two business units from 2023 while it processes the catalysts separation.
Albemarle's revenue is growing exponentially, and it expects to be free-cash-flow positive this year. So even if the stock fluctuates with the market, it's still one of the best lithium stocks you can buy for the long term.
