Does Investment in Mining Giant Albemarle Corporation Make Sense Right Now?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 26th Jul 2022 13:20 GMT+1

Albemarle Corporation (NYSE: ALB) is a Charlotte-based specialty chemicals manufacturing company. It operates through three major divisions: Lithium, bromine specialties, and catalysts. As per 2020 figures, the company is the largest provider of lithium for electric vehicle (EV) batteries. It also serves several other markets such as energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, and many more.

While the company is a major player in the growing lithium space, it isn’t completely immune to the inflationary waves and rising interest rates, as Albermarle stock has lost around 15% this year. Compared to the broader market, the performance of Albemarle stock has been significantly better.

Considering the potential of the lithium industry as well as the hold Albemarle has in this space, the market is quite optimistic regarding the performance of this company.


Lithium demand is growing

The International Energy Agency estimates that over the next 20 years, lithium demand will expand at a CAGR (compounded annual growth rate) of 20.3%, potentially increasing by more than 40 times. The expansion of this new sector of the economy has been largely fueled by the rising output levels of consumer electronics and electric vehicles. 

By the end of this year, it is predicted that 670,000 EVs will have been sold in the U.S. alone, an increase of 37%. The price of lithium is also trending upward as a result of this significant mismatch in supply and demand, which is beneficial to the stakeholders in the market.

Albemarle is one of the principal players in the lithium market, and its lithium business is one of the major driving forces behind its development. In the previous year, the company's lithium section expanded at a 19% rate while its overall sales increased by 6%. Additionally, the lithium division accounts for 55.1% of its EBITDA and 41% of its overall sales.

Albemarle has made major investments in the growth of its lithium segment in recognition of the opportunities in this sector. Along with M&A activity, the company had also amplified its production at the Greenbushes mine, one of the largest lithium reserves, to reach a capacity of 160,000 metric tonnes annually.

Albemarle should report handsome profits as lithium demand increases further.


Albemarle is witnessing financial growth

The growth in product demand for Albemarle has had a favorable impact on the company's financials. Despite dealing with inflation and a number of other geopolitical obstacles in the first quarter of this year, the company managed to increase its revenues by 36% year over year to $1.3 billion. 

The growth is actually 44% when the impact of the Fine Chemistry Services business sold by it last year is taken out. However, the adjusted diluted EPS of $2.38 rose by a staggering 116%, showcasing its operating leverage. Additionally, Albemarle was able to report an adjusted EBITDA of $432 million, representing a noteworthy 88% gain.

The forecasts for this year have also been updated by Albemarle twice this time in light of the rising prices for lithium and bromine. The company anticipates its sales to range between $5.8 billion and $6.2 billion and believes that its adjusted EBITDA might range between $2.2 billion and $2.5 billion.

The stock is currently priced at $220, and the average target price is $271, a potential upside of over 20%. Albemarle has been operating its business successfully and has a bright future ahead of it. The stock is doing substantially better than most others on the market, thanks to the growth in the lithium sector. Although the PE of 87.25 times makes the stock relatively expensive, considering the potential future gains, buying Albemarle Corporation stock looks worthwhile.

Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.