Why Shares in Albemarle Popped by 18% This Week
Key Points
Cost-cutting and asset sales are strengthening Albemarle's balance sheet.
Lithium demand and pricing remain uncertain, but Albemarle is cash-generative.
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Albemarle (NYSE: ALB) shares went up 17.9% this week after several Wall Street analysts increased their price targets following the company's third-quarter earnings report last week.
Why analysts are more optimistic
Analysts are more optimistic because Albemarle is cutting costs and capital spending, and making productivity improvements as lithium demand weakens. Management expects full-year results to be "toward the higher end of the previously published $9/kg scenario ranges" for the price of lithium.
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It's been a challenging couple of years for Albermarle as the previous boom in electric vehicle (EV) investment (a market that drives demand for lithium batteries) slipped into a slowdown as EV sales haven't lived up to expectations.
Automakers increased their investment in EVs during the lockdowns, leading to many new models coming out in 2025. Although EV sales continue to rise and buying stocks like Tesla could set you up for life, overall growth has been slower than expected. High interest rates, expensive upfront costs, and changes in regulations and incentives in countries like the U.S. and Germany have all contributed to this trend.
These factors have put pressure on lithium prices and, as a result, on Albemarle's profits.
Image source: Getty Images.
What's next for Albemarle
Still, Albemarle is taking action. The company is selling its 51% stake in Ketjen, a refining catalyst business, and its 50% stake in Eurecat. These sales will bring in $660 million in cash to help strengthen its balance sheet. Wall Street expects Albemarle to generate $377 million in cash in 2025, which matches management's estimate of $300 million to $400 million. The company is also expected to have $2 billion in net debt by the end of the year.
While the near-term outlook for lithium demand remains uncertain, Albemarle is cash-generative and well positioned for any improvement.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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