Image Source: Albemarle
By Brian Nelson, CFA
Albemarle Corporation (ALB) released preliminary fourth-quarter numbers for revenue and earnings on January 23 that came in better than the consensus estimate. Net sales in the quarter are expected in the range of $2.59-$2.65 billion, up 190% to 196%, while adjusted diluted earnings per share is targeted in the range of $8.35-$8.75, up 727% to 766%. We’ll get final results for the fourth quarter on February 15, but clearly Albemarle is doing a lot of things right to put up such fantastic growth rates. For those just getting familiar with key ideas in the simulated ESG Newsletter portfolio, here is some background on Albemarle’s operations from its most recent Form 10-K; note that Albemarle will adopt a new segment structure soon–‘Energy Storage,’ ‘Specialties,’ and ‘Ketjen:’
(Albemarle is) a leading global developer, manufacturer and marketer of highly engineered specialty chemicals that are designed to meet our customers’ needs across a diverse range of end markets…Our Lithium business [~72% of revenue] develops lithium-based materials for a wide range of industries and end markets. We are a low-cost producer of one of the most diverse product portfolios of lithium derivatives in the industry…
Lithium is a key component in products and processes used in a variety of applications and industries, which include lithium batteries used in consumer electronics and electric vehicles, high performance greases, thermoplastic elastomers for car tires, rubber soles and plastic bottles, catalysts for chemical reactions, organic synthesis processes in the areas of steroid chemistry and vitamins, various life science applications, as well as intermediates in the pharmaceutical industry, among other applications…
…Our bromine and bromine-based business [~17% of revenue] includes products used in fire safety solutions and other specialty chemicals applications. Our fire safety technology enables the use of plastics in high performance, high heat applications by enhancing the flame resistant properties of these materials. End market products that benefit from our fire safety technology include plastic enclosures for consumer electronics, printed circuit boards, wire and cable products, electrical connectors, textiles and foam insulation.
…[In its Catalysts segment (~11% of revenue)], we offer a wide range of [hydroprocessing catalysts] HPC products, which are applied throughout the oil refining industry. Their application enables the upgrading of oil fractions to clean fuels and other usable oil feedstocks and products by removing sulfur, nitrogen and other impurities from the feedstock. In addition, they improve product properties by adding hydrogen and in some cases improve the performance of downstream catalysts and processes. We continuously seek to add more value to refinery operations by offering HPC products that meet our customers’ requirements for profitability and performance in the very demanding refining market.
CEO Kent Masters had the following to say when the firm released preliminary fourth-quarter results: “We delivered record results in 2022, exceeding our previous projections, and our updated outlook and long-term targets reflect further growth acceleration. Albemarle is a leading producer of critical ingredients for some of the most powerful trends transforming the modern world, and we are partnering with other industry leaders to provide secure supply, innovative technologies and improved sustainability.” For 2023, Albemarle is targeting net sales in the range of $11.3-$12.9 billion and adjusted diluted earnings per share in the range of $26.00-$33.00. Cash flow from operations in the year is targeted at $2.1-$2.4 billion, while capital spending is targeted at $1.7-$1.9 billion, implying positive free cash flow on the year.
Image Source: Albemarle
Image Source: Albemarle
By 2027, things are expected to get even better for Albemarle, especially for free cash flow which is expected to be $2.6-$2.7 billion thanks to tremendous sales and adjusted EBITDA expansion. Over the next five years, revenue is expected to expand at a 19%-21% CAGR while adjusted EBITDA is expected to reach $7.2-$8.4 billion, up from $4.2-$5.1 billion in 2023 and $3.44-$3.49 billion in 2022. Though five-year forecasts are fraught with risk, the firm’s newly created ‘Energy Storage’ division is expected to generate most of the profits on rather lofty adjusted EBITDA margins of 45%-47%. Albemarle’s ‘Energy Storage’ division is expected to fuel most of the company’s top-line growth, too, at an annual pace of 25%-27% over the next five years.
Image Source: Albemarle
Image Source: Albemarle
Image Source: Albemarle
Albemarle released a very promising five-year outlook in late January 2023, one that implies a tremendous pace of top-line expansion, profitability growth, and free cash flow generation in the coming years. We’re huge fans of the outlook and believe lithium demand will continue to be robust, even as new supply comes to market. Albemarle has called its next five years a period of “transformational growth,” where expected net sales are targeted at 2.5x 2022 levels and adjusted EBITDA is targeted to more than double. Electric vehicle demand remains robust, and Albemarle has opportunities across the end markets of mobility, energy, connectivity, and health, too. We think Albemarle remains one of the best growth stories on the market today, and we like shares.
Albemarle’s 16-page Stock Report (pdf) >>
Albemarle’s Dividend Report (pdf) >>
Tickerized for ALB, LAC, LIT, LTHM, PLL, LITM, SQM, GM, RIVN, ION, SGML, REMX, HMB
———-
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.