Lithium Price Volatility Triggers Albemarle's Q3 Earnings Stumble - Analysts Trim Price Targets

BMO Capital Markets analyst Joel Jackson reiterated an Outperform rating on Albemarle Corporation ALB, lowering the price target to $180 from $265.

Albemarle missed earnings and sales estimates in Q3, with Adjusted EBITDA of $453.3 million, down over 60% Y/Y.

Following Q3 results, Jackson lowered 2024 estimates and targets after ALB disclosed lithium margins will only return to ~35% by late 2024 (assuming spot prices).

The analyst writes that the bears have spoken, and the pendulum swung one way (lower lithium prices, mining-like, not spec chem multiples, capital overspend concerns, etc.)

ALB sees the potential for EV demand growth to slow in the near term in North America/Europe, given economic softness, but thinks the long-term trajectory remains intact, the analyst notes. The company believes lithium prices are at the bottom.

Management is taking a hard look at the capex spend for 2024 and beyond, including sequencing growth projects, the analyst adds.

Jackson models 2024E/2025E capex of $1.8 billion/$2 billion (2023: $2 billion).

The analyst assumes lithium prices will slightly rebound from current realizations later in 2024E, so Q4/23 realizations are expected to be floor-like.

Following the quarter, the analyst lowered the FY23 EPS estimate to $20.74 from $25.09. For FY24, the analyst lowered the estimate to $12.39 from $18.50.

Oppenheimer analyst Colin Rusch reiterated an Outperform rating on Albemarle, lowering the price target to $308 from $344.

The analyst adjusted estimates to reflect lower lithium price expectations, citing that the inventory situation in the industry appears precarious.

While the analyst remains bullish on lithium demand, adding that the investor community is overly focused on slow EV sell-through in North America, Rusch remains concerned that the extreme volatility in lithium prices could be an ongoing overhang on ALB shares until the market balance is trusted more readily.

Following the results, the analyst lowered the 2023E adj. EPS/EBITDA estimates to $21.56/$3.330 billion (from $25.06/$4.044 billion); 2024E adj. EPS/EBITDA estimates to $18.34/$3.035 billion (from $20.69/$3.386 billion).

Price Action: ALB shares are trading higher by 2.93% to $122.96 on the last check Tuesday.