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It’s time to buy shares of Albemarle as lithium prices in China stabilize, according to UBS. The bank upgraded the stock to buy from neutral. It also hiked its price target to $255 from $196. The new target implies upside of nearly 23%. “We see the current inflection in China lithium pricing and 2023 earnings reset leading to increasingly positive sentiment on the stock. Inflection of lithium prices and battery production in China is setting a much higher floor vs prior cycles,” analyst Joshua Spector wrote. Albemarle manufactures specialty chemicals, with its lithium division amounting to the bulk of the company’s business. Lithium comprises roughly 85% of Albemarle’s earnings before interest, taxes, depreciation and amortization (EBITDA), according to UBS. ALB YTD mountain Albemarle stock. Now that lithium prices are finding a floor, Albemarle will be able to grow volumes as well as EBITDA, UBS said. “As prices stabilize, ALB volumes grow, and we move past temporary spodumene timing impacts, we believe ALB EBITDA can return to growth,” Spector said. “We model 3%/20% EBITDA growth Y/Y in 2024/2025e.” Risks may also already be priced in to Albemarle stock, Spector added, specifically the expectation of lithium prices remaining at roughly $20 per kilogram. “We see these assumptions as too bearish. Even in a scenario where Chile limits resource access (which we deem unlikely), by 2030e ALB will likely have ~365K ton in resource capacity ex-Chile,” Spector said. — CNBC’s Michael Bloom contributed to this report.
UBS sees a big gain for this chemical stock as lithium prices in China stabilize
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