2023 is proving to be a difficult year for investors Albemarle (NYSE: ALB). Lithium stocks are down 25.4% in October alone, according to data from S&P Global Market Intelligence, and at the time of writing have lost nearly 44% of their value so far this year.
Albemarle’s revenue growth is slowing due to the recent drop in lithium prices, and the company also called off a major acquisition last month. Tough business conditions have forced at least 10 analysts covering lithium stocks to cut their price targets in recent weeks, exacerbating their sell-off.
Albemarle calls off acquisition and lowers sales outlook for 2023
In September, Albemarle announced plans to acquire Australian lithium mining company Liontown Resources in a deal worth nearly $4 billion. Liontown Resources owns the Kathleen Valley lithium project, considered one of the most valuable lithium resources in the world, and has already signed agreements with major automakers, including Tesla And Ford to supply spodumene concentrate to be produced at the site from 2024.
However, last month Albemarle walked away from the deal, citing “increasing complexity.” An activist investor’s move to increase its stake in Liontown Resources to become its largest shareholder was most likely the main reason behind Albemarle’s decision to call off the acquisition.
However, just a few days later, Albemarle restructured a joint venture with another Australian miner, paying approximately $400 million to acquire a 100% stake in a lithium hydroxide processing facility in Australia and retaining ownership of two processing facilities in China.
However, Albemarle shares continued to fall throughout the month, in line with falling lithium prices. Lithium carbonate prices have fallen to levels last seen in September 2021 and are now down almost 68% this year after hitting a record high in December 2022, according to data from Trading Economics. The biggest factor driving lithium prices down is a slowdown in the growth of the global electric vehicle (EV) market, especially in China, which is also the world’s largest EV market.
Expectations for Albemarle were already low when the bromine, catalysts and lithium maker cut its sales growth outlook in early November to a range of 30% to 35% for 2023, down from its previous target growth range of 40% to 35%. 55%. Albemarle also expects adjusted earnings per share this year to be just $21.50 to $23.50, compared to its previous guidance of $25 to $29.50.
Not surprisingly, several analysts have lowered their price targets for Albemarle stock. UBS Analyst Joshua Spector currently has one of the lowest price targets, at $140 per share.
Should You Buy or Avoid Albemarle Stock Now?
As global EV battery makers scale back production and capital expenditures in the face of weaker-than-expected demand prospects, lithium prices could remain under pressure. That doesn’t bode well for Albemarle.
However, investors shouldn’t lose sight of the big picture and should instead take advantage of this selloff in Albemarle stock. Lithium is an essential component of EV batteries and demand for it is expected to grow exponentially in the coming years. Albemarle predicts that global demand for lithium will be about five times greater in 2030 than in 2022. That’s huge, and given its leadership in lithium mining and expansion plans, Albemarle is already well positioned to capitalize on those opportunities.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.
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