It's been a tough year for electric vehicle (EV) makers, and that includes related plays - like lithium heavyweight Albemarle Corporation (ALB). As the EV industry battles with higher interest rates, a stretched consumer, and the ongoing price war that's pressuring margins, many EV stocks have suffered heavy losses so far this year - and even raised alarms about their future viability.
Since lithium is a key component of EV batteries, perhaps it's no surprise to see ALB shares underperforming in 2023, as well. On a year-to-date basis, Albemarle stock is off more than 40%, while the broader S&P 500 Index ($SPX) has advanced more than 17%.
However, Wall Street seems to think a rebound is imminent, with the average price target among analysts implying expectations for ALB to gain 62% in the next 12 months. In fact, some bulls think the stock - which also happens to be a Dividend Aristocrat - could more than double over the next year.
So is this well-established dividend stock really a clutch value buy for explosive growth? Let's take a look behind the scenes.
Albemarle and the Lithium Outlook
Valued at $14.38 billion by market cap, Charlotte-based Albemarle Corporation (ALB) is a producer of lithium, bromine, and other specialty chemicals used in EVs, renewable energy storage, petroleum refining, and electronic gadgets.
The lithium market, where Albemarle still holds a leading market share, is expected to see demand surge this decade - and management's own forecasts have been even more optimistic, despite falling lithium prices this year.
After a recent bid to expand via the acquisition of Liontown Resources fell apart, Albemarle lithium executive Eric Norris seemed to indicate the market may be near an inflection point, noting: “When you have prices that low, inventories that low and the market is still growing, you’re going to see a pretty hard bounce at some point.”
Is Albemarle Stock a Good Value?
In the most recent quarter, ALB reported a rare miss on earnings, with EPS of $2.74 falling short of the consensus estimate - as did revenue of $2.31 billion. The report broke a streak of Albemarle consistently beating bottom-line expectations.
Looking ahead, earnings expectations are low. Analysts are targeting a 30.8% earnings decline for ALB in fiscal 2024, while revenue is expected to drop 8.8%. That said, the stock is now priced at 5.6x expected 2023 earnings, and 8x 2024 earnings - suggesting the shares are attractively priced, compared to industry peers.
And income investors will be pleased to know ALB has a very sustainable payout ratio of 5.5%, which means this Dividend Aristocrat's yield has plenty of room to keep growing through business cycles. Currently, Albemarle shares pay $0.40 per quarter for a forward dividend yield of 1.3%, backed by over 25 years of growth.
Notably, Dividend Aristocrats are often favored for the appeal of their steady income over their share price outperformance.
Can ALB Double in the Next Year?
On average, the mean price target for ALB is $205.25, indicating expected upside of 61% over the next 12 months. That might seem ambitious enough, but the Street-high target of $308 is a premium of more than 140% from current levels.
Oppenheimer's Colin Rusch is behind that high target of $308, which was downwardly revised from $344 after earnings. Despite concerns over near-term volatility in lithium pricing, Oppenheimer remains bullish on the long-term demand story.
Out of 20 analysts, 13 are yelling "Strong Buy," 1 recommends a "Moderate Buy," 4 are in "Hold" mode, and 2 are thinking "Moderate Sell."
So, is Albemarle Corporation (ALB) on track to double in value over the next year? Some analysts seem to think so - but given the uncertain outlook for EV demand in the current environment, the best reason for investors to buy ALB at current levels is still probably the rock-steady dividend payout.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
