|
Proprietary Data Insights Financial Pros’ Top Generative Basic Materials Stock Searches in the Last Month
|
|||||||||||||||||||||
A Backdoor to Electric Vehicles |
|
The world is moving towards electric vehicles. It’s not a question of IF but WHEN. Globally, we’re expected to hit 145-230 million EVs by 2030, or roughly 10%-20% of the total cars that should exist by then. Now, you could bet on the carmakers themselves. But why not consider the company that provides the lithium for the batteries? It’s a sneaky strategy that’s popped up underneath our Trackstar data. Rather than financial pros seeking out companies like Tesla (TSLA) or Ford (F), they’ve looked further back in the supply chain. Albemarle Corp. (ALB) is the world’s largest provider of lithium for EV batteries. So if you believe in the EV revolution, you should consider Albemarle for your portfolio. Albemarle’s Business Albemarle Corporation, a specialty chemicals manufacturing company based in Charlotte, North Carolina, is making significant strides in the global market. We’ve already touched on the company’s lithium business. Yet, you may not know the company aims to pioneer cleaner, safer, and smarter solutions. The company’s three divisions include:
The business was recently consolidated into lithium storage, specialites, which consolidates the bromine and lithium specialties, and Ketjen which is its catalysts segment.
Source: Albemarle Investor Presentation As noted below, Albermarle expects 20%-30% CAGR in its lithium division through 2030.
Source: Albemarle Investor Presentation This is the company’s most profitable division, with the widest margins. Financials
Source: Stock Analysis Revenues exploded for Albemarle in 2022 as the lithium division exploded onto the scene. To give you an idea, in 2021, the net income for that division was $192 million. In 2022, it was $2.9 billion. Subsequently, margins improved on the gross side, jumping from the low 30s to mid-40s, which fed on down the line. The company now runs a free-cash-flow margin of 11.14%. Most of this was driven by the explosion in lithium carbonate prices, which sextupled from late 2021 to late 2022. They’ve since cooled, but are well more than double where they initially started. That’s weighed on the company’s recent outlook for 2023 where they lowered their sales forecast. Nonetheless, the company holds only $1.8 billion in net debt and should generate around $2.0 billion in cash from operations, which is what it did last year. Valuation
Source: Seeking Alpha We compared Albemarle to other basic materials companies to get a sense of its relative worth in the commodity space. For example, Freeport McMoRan (FCX) is heavily tied to copper and gold, while Huntsman (HUN) and Dow (DOW) deal with chemicals and Cleveland Cliffs (CLF) in steel. You can see the relative P/E valuation based on expectations for the different commodity prices next year, which many expect lithium to pull back, chemicals to remain flat, and copper to stay strong. This is also reflected in the price-to-cash-flow. However, you can see the separation, where investors are adding a premium to ALB and FCX, implying the outlook for chemicals and steel may not be so rosy. Growth
Source: Seeking Alpha Last year’s growth numbers put ALB well ahead of its peers. And notably, the shift to EVs is seen in the three and five-year CAGR for revenue and EBITDA in ALB. We are a bit skeptical of the 45% forward growth listed here as the latest guidance from the company was closer to flat. Profitability
Source: Seeking Alpha With the rise in lithium prices, ALB’s margins expanded well past any of its peers, dropping all that improvement down to the bottom line. That’s given it the best returns inequity, assets, and total capital, not to mention the highest net income per employee by a mile.
Our Opinion 9/10 Albemarle is a great stock to own if you want to play the EV macro theme. While it has some risks from its operations in China, the company’s global footprint should mitigate short-term problems. This is one you want to buy on dips and just hold for the next 5-10 years, especially when you see dips in lithium prices. |
|
News & Insights |
Just Spilled |
|
Want to get content like this directly to your inbox? Then we urge you to sign up for our newsletter here |