Albemarle Corporation is an international chemical company specializing in the extraction and processing of high-value products such as lithium, bromine, potassium chloride, and magnesium chloride. The company is based in the United States, in North Carolina, and has manufacturing facilities worldwide. It is the largest lithium producer in the world.
Albemarle Corporation’s main activity is lithium extraction and processing. The company supplies lithium batteries to industrial sectors such as electric vehicles, solar energy, and energy storage.
Furthermore, Albemarle Corporation produces bromine, potassium chloride, and magnesium chloride. Bromine is used in various industries such as photography, manufacturing, and medical devices. Potassium chloride is used in the production of fertilizers and chemicals. Magnesium chloride is utilized in medicine, construction, and industry.
Income distribution by economic sectors:
In 2022, the company’s total revenue increased by almost 120%. This significant rise was driven by the considerably higher prices of lithium futures contracts in the market that year. Therefore, it is necessary to analyze somewhat distorted data. It is important to acknowledge that lithium prices in the market dropped in 2023. As a result, we won’t see such revenue figures in next year’s report.
And therefore, an average annual income growth of 11.26% for the mining and livestock company seems very impressive. However, let’s be pragmatic and expect a more moderate growth in the coming years. When looking at the dynamics of performance indicators, we can see that they fluctuate significantly from year to year. Last year, there was a significant increase in demand for lithium in the electric vehicle industry. Indeed, the demand will continue, but competitors, especially in China, will take their share. Among the competitors is Tesla.
The facts today are that the average annual EPS growth rate over a period of 10 years is 20.74%, and the growth rate over a 5-year period averages an impressive 115.63% annually. However, we should not forget that such growth stems from a staggering 2,055% growth in just one year.
Therefore, we calculate not only ROAA and ROAE but also the 10-year average of ROAE. This evens out the indicators, making the picture more realistic. In 2022, ROAA was 20.35%, despite the fact that Total assets increased by 41% during the year. The average ROAE was 15.32%, which represents a very normal growth.
The average annual growth of Retained profit was 12.37%, and its profitability reached 44%. This allowed the company to borrow less. However, borrowing is necessary because in a competitive environment, it is crucial to maintain high profitability indicators. On average, one dollar invested in Long-term assets earned $1.33 in EPS.
Albemarle income forecast
At the moment, we can see that we are dealing with a market leader for sure. It’s very interesting to see how they will perform in 2023 and in the future. Here is the revenue forecast:
|Revenue||2 555 584 000||1 886 514 000|
|Net Profit||1 381 597 000||1 560 278|
If the owners of the company wanted to sell the business and invest the proceeds today (at the time of writing) in 10-year US Treasury bonds to achieve the same return they received in 2022, they should sell the shares for $500 each.
The company’s stocks are traded on the NYSE stock exchange. The ticker is ALB.
There is a dividend payment policy in place. Additionally, the company also has a share buyback program; however, they have not repurchased shares for a long time, and there are no Treasury shares on the balance sheet. The 10-year compound annual growth rate (CAGR) of dividends is 5.54%. The dividend yield at the time of writing was only 0.93%.
The stock price’s standard deviation was 45.6%, and the Beta was 1.58. It is a sufficiently risky stock and very suitable for traders. However, we can see that the company’s management effectively exploits its market leadership position. The stock may also be interesting for long-term investors.
The price perspective calculated using the GRAPES method is $300 USD. This represents a very realistic long-term price increase. The Price/Earnings to Growth (PEG) ratio is highly attractive at 0.71. The Equity Risk Premium, which was 2.15% at the time of writing, looks pessimistic.
The price perspective calculated by our method aligns with the GRAPES perspective. However, if the market situation unfolds in a way that causes the price of lithium to rise, the profitability of investments could reach up to 20% on average annually.
During the writing, we did not have any company stocks. Would we buy them? Yes. The yield looks very attractive. However, the stock price in the market during the writing (September 29, 2023) has already corrected down by -45.6% from the highs reached at the end of 2022. Therefore, we believe that stocks can be acquired at a „discount.” Furthermore, it is also possible to expect even greater „discounts” in the future.
In short, it’s worth having these stocks in the portfolio. With markets rising rapidly, it’s profitable to have more stocks. When a correction starts again, the quantity in the portfolio should be reduced.