2023 is turning out to be a tough year for investors in Albemarle (ALB 1.65%). The lithium stock slumped 25.4% in October alone, according to data provided by S&P Global Market Intelligence, and has lost nearly 44% of its value so far this year, as of this writing.
Albemarle's sales growth is decelerating because of the recent slump in lithium prices, and the company also called off a major acquisition last month. The tough business conditions have compelled at least 10 analysts covering the lithium stock to slash their target prices on it in recent weeks, exacerbating its sell-off.
Albemarle calls off acquisition, cuts 2023 sales outlook
In September, Albemarle announced plans to acquire Australian lithium mining company Liontown Resources in a deal worth nearly $4 billion. Liontown Resources owns the Kathleen Valley lithium project, considered to be one of the world's most valuable lithium resources, and has already struck agreements with major automakers including Tesla and Ford to supply spodumene concentrate that'll be produced at the site beginning in 2024.
Last month, though, Albemarle walked away from the deal, citing "growing complexities." An activist investor's move to raise her stake in Liontown Resources to become its largest shareholder was most likely the key reason behind Albemarle's decision to call off the acquisition.
Barely a few days later, though, Albemarle restructured a joint venture with another Australian miner and paid around $400 million to acquire a 100% stake in a lithium hydroxide processing facility in Australia and retain ownership in two processing facilities in China.
Albemarle stock, however, continued to fall throughout the month in line with declining lithium prices. Lithium carbonate prices slumped to levels last seen in September 2021, and have now fallen almost by 68% this year after hitting all-time highs in December 2022, according to data from Trading Economics. The biggest factor driving lithium prices lower is a slowdown in the growth of the global electric vehicle (EV) market, especially in China, which is also the world's largest EV market.
Expectations for Albemarle were already running low when, early in November, the bromines, catalysts, and lithium producer cut its sales growth outlook to a range of 30% to 35% for 2023, down from its previous guidance range for growth of 40% to 55%. Albemarle also expects adjusted earnings per share of only $21.50 to $23.50 this year, versus its previous outlook of $25 to $29.50.
Not surprisingly, several analysts have slashed their price targets on Albemarle stock. UBS analyst Joshua Spector currently has one of the lowest price targets on it, at $140 a share.
Should you buy or avoid Albemarle stock now?
With global EV battery makers scaling back production and capital expenditures in light of the weaker-than-expected demand outlook, lithium prices could remain under pressure. That doesn't bode well for Albemarle.
Investors, however, shouldn't lose sight of the big picture, and instead, should take advantage of this sell-off in Albemarle stock. Lithium is an essential component of EV batteries, and demand for it is expected to grow exponentially in the coming years. Albemarle projects that global demand for lithium by 2030 will be about five times greater than it was in 2022. That's huge, and given its leadership in lithium mining and expansion plans, Albemarle is already well positioned to exploit those opportunities.
