US lithium producer Albemarle has earned a Buy rating from UBS, with the broker calling it the best growth opportunity in chemicals.
In a note this week, UBS said it was upping its rating on Albemarle to Buy from Neutral, citing the current inflection in China lithium pricing and 2023 earnings reset leading to “increasingly positive sentiment” on shares.
“Inflection of lithium prices and battery production in China is setting a much higher floor versus prior cycles, consistent with the UBS view of higher medium-term prices due to still tight supply and demand balances,” UBS analysts wrote.
Albemarle relies heavily on lithium, which contributes approximately 85% of its earnings before interest, taxes, depreciation, and amortization (EBITDA). Lithium prices in China have dropped by over 50% since their peak in December 2022 and the lithium producer’s stock has experienced a decline of around 35%.
The analysts suggest that investors are factoring in a long-term lithium pricing of around $20 per kilogram in Albemarle’s stock price, compared to an estimated $23 per kilogram in UBS’s forecast. Additionally, the projected lithium volumes for 2030 are approximately 10% lower than analyst estimates.
UBS noted its updated estimates reflect further lithium price moderation and spodumene timing impacts, but puts it near consensus in 2024, and around 25% higher in 2025 when growth resumes.
“We see the stock pricing in some combination of lower structural pricing versus UBS estimates and/or lost share, and valuing the stock near the pure commodity end of our valuation spectrum,” the analysts wrote.
UBS has also increased its price target on Albemarle from $196 to $255.
Shares of Albemarle were up around 0.8% at $209.89 on Thursday afternoon.
Contact Angela at angela@proactiveinvestors.com
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