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 higher interest rates, a strained consumer base and the ongoing price war that is squeezing 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, it may not be a surprise to see ALB stock downbeat in 2023 as well. For the year, Albemarle shares are down more than 40%, while the broader S&P 500 Index ($SPX ) advanced more than 17%.
However, Wall Street seems to think a rebound is imminent, with the median price target among analysts implying expectations that ALB will gain 62% in the next 12 months. In fact, some bulls think the stock — which also happens to be 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 Prospect
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, oil refining, and electronic devices.
The lithium market, where Albemarle still holds a leading market share, is expected to see demand grow this decade – and management’s own forecasts were even more optimistic, despite the drop in lithium prices this year.
After a recent bid to expand through the acquisition of Liontown Resources fell apart, Albemarle lithium executive Eric Norris seemed to indicate that the market may be near an inflection point, noting: “When you have prices this low, inventories this low and the market still is. growing, you’re going to see a pretty hard rebound at some point.”
Is Albemarle Stock A Good Value?
In the most recent quarter, ALB reported a rare earnings miss, with EPS of $2.74 far short of the consensus estimate — as well as revenue of $2.31 billion. The report broke a streak of Albemarle consistently beating below expectations.
Looking ahead, earnings expectations are low. Analysts are targeting a 30.8% decline in revenue for ALB in fiscal 2024, while revenue is expected to fall 8.8%. That said, the stock is now priced at 5.6x expected 2023 earnings, and 8x 2024 earnings – suggesting the stock is attractively priced, compared to industry peers.
And income investors will be happy to know that 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’s stock pays $0.40 per quarter for a 1.3% ex-dividend yield, backed by more than 25 years of growth.
In particular, Dividend Aristocrats are often favored for the appeal of their stable income over their share price outperformance.
Can ALB Double in the Next Year?
On average, the average price target for ALB is $205.25, indicating an expected upside of 61% over the next 12 months. That might seem pretty ambitious, but the Strata high target of $308 is a premium of more than 140% from current levels.
Colin Rusch of Oppenheimer is behind that high target of $308, which was revised down from $344 after earnings. Despite concerns about near-term volatility in lithium prices, Oppenheimer remains bullish on the long-term demand story.
Out of 20 analysts, 13 shout “Strong Buy”, 1 recommends “Moderate Buy”, 4 are in “Hold” mode, and 2 think “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 likely to be the rock-steady dividend payout.
At 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 for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.