Albemarle Corporation (ALB - Free Report) is well placed to leverage strong expected growth in the battery-grade lithium market. The company should gain from rising demand for lithium-ion batteries that are used to power electric cars.
The market for lithium-ion batteries has a lot of untapped potential. Demand for these batteries are expected to go up with their increasing adoption in consumer electronic products as well as efforts to promote the use of electric cars by several governments to curb pollution.
Albemarle, which currently carries a Zacks Rank #3 (Hold), has seen its shares rise 7.3% year to date, outperforming the 4.1% decline of its industry.
What’s Working in ALB’s Favor?
Albemarle, in its fourth-quarter call, said that its performance in 2018 and execution of its lithium growth projects have positioned it for another year of growth in 2019. The company expects growth in 2019 to be driven by higher volumes in the Lithium unit.
Albemarle envisions net sales for 2019 to be between $3.65 billion and $3.85 billion, representing a roughly 8-14% year over year growth. The company also sees adjusted earnings for 2019 in the band of $6.10-$6.50 per share, a year-over-year increase of 11%-19%.
Albemarle is seeing significant momentum in its lithium business. The company is executing a number of projects aimed at boosting its global lithium derivative capacity. Its “Wave I” of lithium production capacity expansion is on track.
Albemarle, in late 2018, agreed to pay $1.15 billion for a 50% stake in a proposed joint venture (JV) with Mineral Resources to own and operate the Wodgina hard rock lithium mine in Australia and develop an integrated lithium hydroxide operation at the resource site. The JV combines Albemarle's world-class lithium production and marketing expertise with Mineral Resources’ leading mining capabilities as well as regional presence.
Albemarle also remains committed to deliver incremental returns to shareholders. Its board, earlier this year, declared a 10% hike in its quarterly dividend to 36.75 cents per share. The move marked the 25th straight year that the company has raised quarterly dividend.
The company returned around $145 million to its shareholders through dividends during 2018. It also completed two accelerated share repurchase programs in 2018 worth $500 million.
A Few Concerns
Albemarle faces some headwinds in first-quarter 2019. The company recently stated that its Lithium unit is expected to witness a shift in volumes of roughly 3,000-3,500 metric tons on LCE basis from the first quarter to subsequent quarters in 2019.
The volume shift is expected to dent first-quarter performance by roughly $40-$45 million in revenues and $15-$18 million in EBITDA.
Per the company, the shortfall in volume was mainly due to the timing of customer qualifications of lithium hydroxide from Xinyu II and lithium carbonate from toll manufacturers. Production issues at the La Negra site, Chile, due to the disruption of fresh water supply also affected volumes in the first quarter. Nevertheless, Albemarle envisions that the shortfall to be recovered during the remainder of 2019.
Moreover, the company’s Catalysts segment faces some challenges from an expected decline in Performance Catalyst Solutions business in 2019 due to pricing pressures and the loss of a large customer contract.
Stocks to Consider
A few better-ranked stocks worth considering in the basic materials space include Innospec Inc. (IOSP - Free Report) , Ingevity Corporation (NGVT - Free Report) and W. R. Grace & Co. (GRA - Free Report) .
Innospec has an expected earnings growth rate of 3.5% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares are up around 20% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingevity has an expected earnings growth rate of 17.9% for the current year and carries a Zacks Rank #2 (Buy). Its shares have rallied roughly 45% in the past year.
W. R. Grace has an expected earnings growth rate of 10.4% for the current year and carries a Zacks Rank #2. Its shares have gained around 17% in the past year.
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