Albemarle Earnings: Cost Reductions Drove Profit Growth Despite Lower Lithium Prices

Key Morningstar Metrics for Albemarle

• Fair Value Estimate: $225.00
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Albemarle’s Earnings

Albemarle ALB shares rose 2% as unit cost reductions more than offset lower lithium prices to generate profit growth versus the prior-year quarter. The company also announced it could generate breakeven free cash flow in 2025 without lithium prices rising.

Why it matters: As lithium prices fell from all-time highs in late 2022 to cyclically low levels over the past two years, Albemarle invested heavily in new growth projects and ramped up new capacity as it was built. This resulted in negative free cash flow and temporarily higher unit costs.

• In response to low prices, Albemarle stopped investing in new lithium growth projects in 2024. In 2025, capital expenditures will fall to less than half of 2024 levels. Lower capex levels should allow the company to generate positive free cash flow by 2026 even if lithium prices remain low.
• The company also began a cost-reduction plan. Reduced overhead costs and higher production from its new lithium projects will lower unit production costs. Lower costs will allow Albemarle to generate profit growth and higher margins even if lithium prices do not recover.

The bottom line: We maintain our fair value estimate of $225 per share for Albemarle. The results and guidance for 2025 are in line with our forecast that the firm will see greatly reduced unit production costs, driving margin expansion.

• We also think Albemarle will benefit from higher average lithium prices in 2025. We see prices remaining around their current levels for the first half of the year. However, as demand growth remains strong, we expect prices to rise modestly by the end of 2025.
• At current prices, we view Albemarle shares as materially undervalued, with the stock trading in 5-star territory. We point to rising prices and falling unit production costs as two catalysts for the stock in 2025.