What happened
It didn't take long once August began for shares of lithium producer Livent (LTHM) to start heating up. While the stock rose 10% in July, it soared 29% higher in August, according to data from S&P Global Market Intelligence.
In addition to a strong second-quarter earnings report and an upwardly revised 2022 forecast, news regarding the Inflation Reduction Act contributed to the stock's gain last month.
So what
Setting quarterly records for revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), Livent reported $219 million on the top line and $95 million in adjusted EBITDA. To put in perspective the significance of the company's new high-water marks, consider that the company reported sales and adjusted EBITDA of $102 million and $16 million, respectively, during the same period last year.
According to management, the company's record-breaking feats may not be limited to the recent quarter thanks to the expectation that lithium prices will remain high. During its Q2 2022 earnings presentation, Livent reported higher revenue and adjusted EBITDA forecasts for 2022. Whereas the company had originally projected sales of $755 million to $835 million, it now expects to book $800 million to $860 million. Should it achieve the midpoint of this forecast, it will represent a 97% year-over-year gain.
Similarly, management foresees increased profitability, raising its adjusted EBITDA forecast to $325 million to $375 million from an original estimate of $290 million to $350 million. Having reported $70 million in 2021, Livent will achieve a 404% rise in adjusted EBITDA if it achieves the midpoint of its new guidance.
Lastly, the Inflation Reduction Act represented another factor helping to drive shares of Livent higher. Early in August, the Arizona Democrat, Senator Kyrsten Sinema, whose support of the legislation was desperately needed for the its passage, reversed course and affirmed her approval of the bill. With her signing off on the bill, the certainty that it would make it to President Biden's desk -- which happened shortly thereafter -- was all but guaranteed.
Investors are banking on the belief that the Inflation Reduction Act will contribute to the growth of electric vehicle-related stocks like Livent, a leader in the production of lithium, which is a critical material in EV batteries.
Now what
Despite the recent rise in Livent stock, investors can still pick up shares of the lithium production leader at a discount. Currently, Livent stock is trading at 11 times future earnings. For investors looking to power their portfolios with an EV-related stock, Livent is certainly worth a closer look.
