Lithium (LMZ24), often dubbed the “white gold” of the 21st century, stands at the forefront of our shift towards cleaner energy, pivotal for its remarkable energy density and longevity that’s particularly crucial to electric vehicle (EV) batteries.
Philadelphia-based Arcadium Lithium plc (ALTM), a producer of lithium chemicals products, is poised to thrive in the booming lithium chemicals market, which is projected to hit $102.2 billion by 2031, expanding at a 6.5% compound annual growth rate.
Late last month, the lithium stock earned a new “Outperform” rating from RBC Capital, and the brokerage firm projects that earnings could triple by 2027 on strong production growth - even if lithium prices continue to underwhelm. Here’s a closer look at this commodity stock under $5.
About Arcadium Lithium Stock
Arcadium Lithium plc (ALTM), created by the merger of Livent and Allkem earlier this year, is a powerhouse in the lithium industry. The company blends mid-20th century expertise with cutting-edge technology, standing out as "the most vertically integrated, and diversified lithium and chemical exposure across our coverage,” according to RBC. Specializing in lithium hydroxide, Arcadium serves a wide range of industries, from greases and dyes to resins and pharmaceuticals, ensuring top-tier performance for its global clientele.
Valued at a market cap of $3.6 billion, shares of Arcadium have dipped 23.7% over the past three months and 81.7% on a YTD basis.
In terms of valuation, Arcadium stock trades at 13.64 times forward earnings, lower than its industry peer Albemarle Corporation (ALB), which trades at 46.48x. Also, Arcadium’s price/sales of 4.15x is lower than its own five-year average of 11.08x.
Arcadium’s Q1 Bottom Line Beats the Street
Arcadium reported its Q1 earnings results on May 7, which exceeded Wall Street’s bottom-line forecasts. While the company’s total revenue rose 3% year over year to a lighter-than-expected $261.2 million, it generated an adjusted profit of $0.06 per share, which surpassed projections by 100%.
Lithium hydroxide and lithium carbonate comprise the core of Arcadium’s business and constitute about three-quarters of its revenue. It sold around 9,300 metric tons at an average price of $20,500 per ton during the quarter.
With over $400 million in cash, a $500 million undrawn credit facility expandable to $700 million, and potential financing through government loans, prepayments, and strategic partnerships, Arcadium expects to be free cash flow negative for some time to come as it invests in growth initiatives. However, that forecast seems fairly well priced in.
Following the merger of equals, strategic initiatives are expected to yield $60 million to $80 million in synergies this year, with new production capacities reaching 170,000 tons by 2026. Ongoing expansions in Argentina and Canada, where the lithium giant is adding 95,000 metric tons by 2026, underscore the company's commitment to enhancing production capabilities.
Analysts tracking Arcadium predict its profit per share will drop to $0.25 in fiscal 2024, and then recover by 48% to $0.37 in fiscal 2025.
What Do Analysts Expect for Arcadium Stock?
Shares of the lithium miner surged 12.2% on June 26 following RBC Capital analyst Kaan Peker's bullish initiation with an “Outperform” rating and a target price of $4, noting expectations for production growth to offset lackluster lithium pricing.
In particular, Peker expects Arcadium to ramp up lithium carbonate production at a CAGR of 23% through 2027 to 142,000 tons, which he predicts will lead to a tripling of earnings - which means ALTM could potentially reach around $1 billion in net income by 2027, up from $330.1 million in fiscal 2023.
Due to Arcadium’s heavy investment in growth, with planned expenditures of approximately $1.6 billion over three years, RBC anticipates negative free cash flow until 2027, with net debt expected to peak at about $860 million.
Arcadium has a consensus “Moderate Buy” rating overall. Of the 16 analysts covering the stock, eight advise a “Strong Buy,” one gives a “Moderate Buy,” six suggest a “Hold,” and the remaining one recommends a “Strong Sell.”
The mean price target of $9.04 suggests an upside potential of 175.6% from the current price levels. The Street-high target price of $25 for Arcadium implies the stock could rally as much as 662%.
On the date of publication, Sristi Suman Jayaswal 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.
