Albemarle Earnings: Plummeting Prices Pause Expansion Plans

Key Morningstar Metrics for Albemarle

• Fair Value Estimate: $225.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Albemarle’s Earnings

Albemarle’s ALB second-quarter results reflected declining lithium prices, as companywide adjusted EBITDA plummeted 70% versus the prior-year quarter. Management announced further capital expenditure reductions and cost-cutting initiatives in response. Most notably, the company signaled it would place phase two of the Kemerton lithium hydroxide processing facility into care and maintenance and stop work on phase three. Management also said it will reduce its unit production costs to boost profits in the wake of lower lithium prices and cut capital expenditure further in 2025 and beyond.

We’re updating our model to assume lower lithium volumes for Albemarle, partially offset by lower capital expenditures. We’ve also lowered our lithium price outlook. Our updated forecast is for prices to average $20,000 per metric ton over the next decade, which aligns with our view of the marginal cost of production. This is below our prior forecast that prices would average $25,000 per metric ton. As a result, we’re reducing our fair value estimate to $225 from $275. Roughly half of the cut is due to lower volumes, while the other half is due to lower prices. Our narrow moat rating is unchanged. We’re raising our Morningstar Uncertainty Rating to Very High from High.

At current prices, we view Albemarle shares as materially undervalued, trading in 5-star territory and a little more than 40% of our updated fair value estimate. Shares trade around our downside scenario, producing a fair value estimate of $90. In our downside scenario, we assume lithium prices average a little less than $15,000 per metric ton over the next decade, which is well below our current view of the marginal cost of production. In response, we assume little long-term volume growth. As a result, we view current prices as offering a strong margin of safety, with a lower-for-longer scenario already priced into the stock.