Lithium Spot Prices 'Pointing In The Right Direction'; Jefferies Ups Target On Albemarle To $65

Jefferies issued a company note on Albemarle Corporation (NYSE: ALB) after significant increases in the price of lithium spot have contributed to a recent rally in shares of the specialty chemical company. Currently, Jefferies rates Albemarle as a Buy after raising their price target from $58 to $65.

Laurence Alexander, Daniel Rizzo, Jeffrey Schnell and Nicholas Cecero, analysts and associates at Jefferies, wrote, "Rising spot prices support our view that Albemarle will post 5 percent-10 percent price increases in its lithium business in both 2016 and 2017. We believe, however, that Albemarle's priorities will be to improve the quality of its contracts (e.g. weave more longer-term contracts into the mix rather than resetting everything annually, or improve delivery terms) as a way to improve visibility and underwrite the risks associated with investing in new capacity."

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Positive Indicators And Expectations

Jefferies noted that while rising prices of lithium are a positive indicator for Albemarle, they are not a direct indication of increased EPS in future fiscal quarters. The analysts further indicated that Albemarle's direct exposure to the spot market is less than 5 percent, thus an increase in prices is not an enormous windfall for the company.

Going forward, Jefferies believes that a significant catalyst is an increase in pricing power due to improved market position and increased margins.

Albemarle was recently seen trading up 1.16 percent at $57.41.

Image Credit: "Lithium paraffin" by Tomihahndorf at German Wikipedia - Transferred from de.wikipedia to Commons. Licensed under Public Domain via Wikimedia Commons.