Argus: Albemarle Has 30% Upside On Strong Lithium Demand

Albemarle Corporation ALB is likely to benefit from a strong lithium outlook, according to Argus. 

The Analyst

Analyst Mike Jaffe initiated coverage of shares of Albemarle with a Buy rating and a $148 price target, suggesting roughly 30 percent upside from current levels.

The Thesis

Albemarle is likely to benefit from the accelerating production of electric vehicle batteries, analyst Jaffe said in a Friday note.

Sales of lithium-ion batteries are estimated to grow 17 percent on average between 2017 and 2025, reaching $93.1 billion by the end of 2025, Jaffe said, citing Grand View Research.

Although the company has three business segments, each accounting for about one-third of revenue, the analyst said he expects the lithium business to generate an increasing percentage of sales.

"We also expect strength in this segment to result in steady EPS growth over the next several years, despite the inherent cyclicality of the company's overall business," the analyst said. 

Argus expects adjusted earnings per share of $4.50 for 2017 and $5.45 per share for 2018.

Given that Albemarle shares trade at a discounted valuation to the peer group and expectations that the company is poised to grow earnings by 17 percent over the next five years versus 10.9 percent for peers, Jaffe said a higher valuation is warranted.

The Price Action

Albemarle shares are up about 23 percent over the past year, although they have fallen 14.6 percent over the past quarter compared to a 6.5-percent gain for the S&P 500 Index.

The shares were up 1.87 percent after the open Friday.

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