Albemarle Corporation ALB is poised to leverage strong expected growth in the battery-grade lithium market. The company should gain from rising demand for lithium-ion batteries that are used to power electric cars.
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.
Shares of Albemarle, which currently carries a Zacks Rank #3 (Hold), are down 8.6% year to date, outperforming the 20.7% decline of its industry.
What’s Going in ALB’s Favor?
Albemarle, in May, reaffirmed its outlook for 2019. It continues to see adjusted earnings for 2019 in the band of $6.10-$6.50 per share, a year-over-year increase of 11-19%.
The company also backed its net sales guidance for 2019 of between $3.65 billion and $3.85 billion, representing 8-14% year over year growth. Adjusted EBITDA for the year has been forecast in the range of $1,070 million to $1,140 million, representing 6-13% year over year growth.
Albemarle is seeing strong demand for lithium in battery-grade applications. The company is executing a number of projects aimed at boosting its global lithium derivative capacity.
The company is progressing with a 20,000-metric ton lithium hydroxide expansion in China at the Xinyu II facility. It also expects to produce around 40,000 metric tons of lithium carbonate from its two existing operating units in La Negra in Chile in 2019. The company has also started a project which it expects to improve its lithium yields in Salar de Atacama in Chile. It expects the project to boost its lithium yields by as much as 30%.
Albemarle’s Talison joint venture (JV) in Australia is also expanding lithium concentrate production at the Greenbushes mine. The company has also commenced work at its lithium hydroxide conversion plant in Kemerton, Western Australia.
Moreover, Albemarle, in late 2018, agreed to pay $1.15 billion for a 50% stake in a proposed joint venture (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 JV combines Albemarle's world-class lithium production and marketing expertise with Mineral Resources’ leading mining capabilities as well as regional presence.
Albemarle also remains committed to deliver incremental returns to shareholders. The company, in February 2019, raised its quarterly dividend by 10% to 36.75 cents per share. The move marked the 25th straight year that the company has raised quarterly dividend.
A Few Concerns
Albemarle is exposed to currency headwinds. Unfavorable currency swings, stemming from a stronger dollar against various currencies, impacted its sales by $13.3 million in the first quarter. Unfavorable impact on sales for the Lithium segment was $5.7 million in the quarter. Impact for Bromine Specialties and Catalysts units were $3 million and $4.6 million, respectively. Currency headwind will likely continue in the second quarter.
Moreover, the company’s Catalysts segment faces some challenges from an expected decline in Performance Catalyst Solutions (PCS) business in 2019 due to pricing pressures and the loss of a large customer contract. Albemarle sees PCS related headwinds of $11 million in 2019. The company expects earnings in the Catalysts unit to fall year over year in second-quarter 2019.
The company also faces headwind from higher raw material costs across its Bromine Specialties and Catalysts segments.
Albemarle Corporation Price and Consensus
Albemarle Corporation price-consensus-chart | Albemarle Corporation Quote
Stocks to Consider
A few better-ranked stocks worth considering in the basic materials space include Materion Corporation MTRN, Flexible Solutions International Inc FSI and Israel Chemicals Ltd. ICL.
Materion has an expected earnings growth rate of 30.3% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 16% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Flexible Solutions has an expected earnings growth rate of 342.9% for the current fiscal year and carries a Zacks Rank #1. Its shares have surged around 171% in the past year.
Israel Chemicals has an expected earnings growth rate of 13.5% for the current year and carries a Zacks Rank #1. Its shares are up roughly 9% in the past year.
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