Oppenheimer Rates Albemarle Outperform, Sees 17% Upside From Here

Oppenheimer initiated coverage of Albemarle Corporation (NYSE: ALB) at Outperform, with a $133 price target, which suggests about 17-percent upside from current levels.

Analysts Colin Rush, Kristen Owen, Noah Kaye and Luis Amadeo said they expect Albemarle to benefit from its No. 1 position in the lithium market, as the transportation industry moves toward BEV/PHEVs on its way to autonomous vehicles along with the affordability of grid-tied stationary engine storage. The company accounts for over 35 percent of the industry supply.

"We estimate annual demand for lithium will grow by 153K MT LCE in 2016-2021, with about 90K MT coming from BEVs and hybrids, 25K MT from e-buses, and the balance mostly from consumer products," the analysts said.

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Best-In-Class Assets

Oppenheimer thinks the company's lithium resources in Chile and Australia and its bromine resources in Arkansas and the Dead Sea are best-in-class, characterized by higher concentration, size of resource and lower costs. Citing the geographic diversity in its resource base, the firm said Albemarle has a cost advantage and lower geopolitical and operational risk.

Achievable Targets

The firm believes a capable management team is likely to succeed in achieving its target for overall revenue growth of 7–10 percent and adjusted EBITDA margins of 32–35 percent through 2021, helped by growth in lithium business.

Additionally, the firm noted that the company has No. 1 or 2 positions across other major business groups, supported by 1–1.5 times GDP industry growth and a strong balance sheet.

With the four largest lithium producers controlling about 85 percent of industry supply, Oppenheimer believes lithium producers will continue to manage supply carefully, relative to demand so as to avoid excess production and price corrections.
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