Albemarle Corporation ALB is an attractive lithium play and is poised to ride high on rising demand for lithium-ion batteries that are used to power electric cars. These rechargeable batteries are used by several auto makers, including Tesla, Inc. TSLA. They also have applications in consumer electronics (including smartphones and tablets), industrial as well as in the aerospace and defense sector.
The market for lithium-ion batteries has a lot of untapped potential. Demand for these batteries are expected to go up with their increasing adoption in consumer electronic products as well as efforts to promote the use of electric cars by several governments to curb pollution.
Albemarle, carrying a Zacks Rank #2 (Buy), is seeing significant momentum in its lithium business and is well placed to leverage strong expected growth in the battery-grade lithium market. The stock has gained around 8% over the past two years, outperforming the roughly 4% rise of its industry.
Let's delve deeper into the factors that make Albemarle stock an attractive investment option at the moment.
Impressive Earnings Surprise History
Albemarle has outpaced the Zacks Consensus Estimate in each of the trailing four quarters. In this timeframe, the company has delivered a positive average earnings surprise of 7.5%.
Healthy Growth Prospects
The Zacks Consensus Estimate for earnings for 2018 for Albemarle is currently pegged at $5.43, reflecting an expected year-over-year growth of 18.3%. Moreover, earnings are expected to register a 12.5% growth in 2019. The company also has an expected long-term earnings per share growth rate of 16.3%, higher than the industry average of 12.6%.
Earnings estimates for 2018 have also moved up over the past month. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 1%.
Revenues for Albemarle for 2018 is projected to rise roughly 10.1% year over year as the Zacks Consensus Estimate for the year is currently pegged at $3.38 billion. Revenues for 2019 are also expected to increase 7.8% year over year as the Zacks Consensus Estimate for the year is $3.64 billion.
Superior Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Albemarle is 15.4%, above the industry’s level of 10.5%.
Albemarle remains committed to deliver incremental returns to shareholders. The company, earlier this year, raised its quarterly dividend by 5% to 33.5 cents per share, marking the 24th straight year of dividend increase.
The company has also completed its accelerated share repurchase program that was initiated in May 2018. It also initiated a new accelerated share repurchase program worth $250 million in August and expects to complete it by end-2018. The company has bought back roughly 4.7 million shares during the first nine months of 2018.
Lithium Expansions to Drive Growth
Albemarle, last month, backed its guidance for 2018. The company continues to see adjusted earnings for the year to be in the band of $5.30-$5.50 per share, a year-over-year increase of 15%-20%. The company also envisions net sales for 2018 to be between $3.3 billion and $3.5 billion.
The results in the company’s lithium business are expected to be aided by favorable pricing and volume trends in battery grade products. The company expects its Lithium unit to deliver low 20% year over year growth in adjusted EBITDA in 2018, driven by improved pricing and strong volumes.
Albemarle is executing a number of projects aimed at boosting its global lithium derivative capacity. Its “Wave I” of lithium production capacity expansion is on track. The company’s Talison joint venture (JV) in Australia is expanding lithium concentrate production at its Greenbushes mine. Albemarle is also progressing with a 20,000-metric ton lithium hydroxide expansion in China at Xinyu II and sees significant hydroxide volumes from this unit in 2019. The Wave I expansions are expected to be fully completed by 2021 boosting Albemarle’s global lithium derivative capacity to 165,000 metric tons.
Albemarle also recently agreed to pay $1.15 billion for a 50% stake in a proposed JV with Mineral Resources to own and operate the Wodgina hard rock lithium mine in Australia and develop an integrated lithium hydroxide operation at the resource site. The company will manage the marketing and sales of lithium hydroxide produced by the JV. The JV will combine Albemarle's world-class lithium production and marketing expertise with Mineral Resources’ leading mining capabilities as well as regional presence.
Albemarle Corporation Price and Consensus
Albemarle Corporation Price and Consensus | Albemarle Corporation Quote
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include The Mosaic Company MOS and CF Industries Holdings, Inc. CF, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Mosaic has expected long-term earnings growth rate of 7%. Its shares have surged 51% in the past year.
CF Industries has expected long-term earnings growth rate of 6%. Its shares have gained 16% in a year.
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