Albemarle Corporation ALB is expected to benefit from strong long-term growth in the battery-grade lithium market and its actions to expand capacity amid certain headwinds including global lithium pricing weakness.
Shares of Albemarle are down 21.3% over a year, compared with the 56.4% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding ALB?
Albemarle sees strong long-term demand for lithium and is executing a number of projects aimed at boosting its global lithium derivative capacity.
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.
As part of its lithium growth strategy, Albemarle, in 2019, completed its joint venture (JV) transaction with Mineral Resources Limited under an Asset Sale and Share Subscription Agreement. The 60/40 JV between Albemarle and Mineral Resources is named as MARBL Lithium Joint Venture (MARBL). Under the deal, Albemarle purchased a 60% stake in Mineral Resources’ Wodgina spodumene mine in Western Australia for $1.3 billion.
Last year, Albemarle also completed a 20,000-metric ton lithium hydroxide expansion in China at the Xinyu II facility. It also increased lithium carbonate production in La Negra I and II by roughly 5%. The company has also commenced work at its lithium hydroxide conversion plant in Kemerton, Western Australia.
Albemarle also remains committed to deliver incremental returns to shareholders. The company paid dividend worth around $152 million to its shareholders in 2019.
The company's board, last month, declared an increase in its quarterly dividend. The revised dividend of 38.5 cents per share is roughly 5% higher than the previous quarterly dividend. Following the hike, the company’s new annualized dividend amounted to $1.54 per share.
The company also has been named to the S&P 500 Dividend Aristocrats Index effective Feb 3, 2020. The index measures the performance of S&P 500 companies that have raised dividends every year for the last 25 straight years. Notably, with the latest dividend increase, the company has hiked its dividend for the 26th consecutive year.
A Few Worries
Albemarle is seeing pricing pressure for both lithium carbonate and hydroxide in specific markets. Lithium prices remain under pressure amid oversupply of the white metal in the market. According to the company, lithium supply capacity grew faster than demand last year, leading to oversupply in the market. This has caused a sharp decline in lithium prices. Moreover, the coronavirus outbreak is likely to hurt demand in the automotive market in China.
The company envisions lower results from the Lithium segment in 2020. It expects adjusted EBITDA for the unit to be down around 20% this year on lower pricing.
Albemarle expects its results in 2020 to be lower on a year-over-year basis factoring in lower expected results from the Lithium segment. The company sees net sales for 2020 to be between $3.48 billion and $3.53 billion, representing 2-3% year over year decline. Moreover, adjusted earnings for 2020 are forecast in the band of $4.80-$5.10 per share, a year-over-year drop of 16-21%.
Moreover, Albemarle is facing some headwinds associated with its Bromine Specialties business. The unit faces challenges from weakness in the automotive market. The company expects demand in China to remain flat this year. It also sees a weak first quarter in China due to the virus outbreak.
Albemarle Corporation Price and Consensus
Albemarle Corporation price-consensus-chart | Albemarle Corporation Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are NovaGold Resources Inc. NG, Daqo New Energy Corp. DQ and Barrick Gold Corporation GOLD.
NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1 (Strong Buy). The company’s shares have surged roughly 108% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy has a projected earnings growth rate of 336.1% for 2020. The company’s shares have rallied around 57% in a year. It currently carries a Zacks Rank #2 (Buy).
Barrick Gold currently has a Zacks Rank #2 and a projected earnings growth rate of 43.1% for 2020. The company’s shares have rallied around 38% in a year.
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