Albemarle is a “lithium pure play,” with strong earnings power to match, according to Piper Sandler. Piper analyst Charles Neivert began research coverage of Albemarle with an overweight rating, saying investors are underestimating the miner’s earnings growth outlook. Lithium is one of five critical minerals required in electrical vehicle batteries, according to the Congressional Research Service. Piper bases its 12-month share price target of $310 on the likelihood that Albemarle should sell for 7.1x the bank’s 2024 EBITDA estimate of $5.5 billion — vs. a consensus EBITDA view of $4 billion. “The multiple represents a substantial discount vs the historical multiple of 12.1x. We believe the discount may emanate from a mischaracterization of ALB earnings going forward,” Neivert wrote Wednesday. “Based on consensus 2024 EV/EBITDA multiple of 6.9x, the market seems to be applying a multiple more commonly associated with cyclical shares, and indicative of not only peak earnings but a significantly lower trough at some point in time. However, we see a company transitioning from a cyclical to one more associated with growth, deserving a multiple more in line with its historical performance,” Neivert added. Shares of Albemarle are outperforming to start the year, up nearly 25% through Wednesday’s close. Last year, the stock also outpaced the S & P 500, down 6.6% compared to the broader market’s roughly 19% fall. The analyst’s 12-month price target of $310 represents more than 14% upside from Wednesday’s closing price. Shares are up more than 1% in Thursday premarket trading. Nievert expects that strong lithium prices will continue to boost earnings as Albemarle expands its capacity — even if lithium pricing eases off from 2022 levels. Albemarle is expanding capacity in China as well as in the U.S., Australia and Chile, which should add to its “exceptional cash generating capability.” “Despite the cooling, we still see significant increases in earnings in 2023 as 1H23 earnings comps will be substantially above year ago levels. We believe 2024 earnings will come in above those of 2023 on significant volume increases coming from the projects now underway, which may more than mitigate the price declines,” read the note. —CNBC’s Michael Bloom contributed to this report.
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