In a report released today, Vincent Andrews from Morgan Stanley maintained a Sell rating on Albemarle (ALB – Research Report), with a price target of $81.00.
Vincent Andrews has given his Sell rating due to a combination of factors surrounding Albemarle’s recent financial maneuvers and future earnings potential. Andrews points to the company’s recent convertible equity raise, which, although it brought in substantial funding, resulted in net dilution and raised concerns about Albemarle’s balance sheet and volume growth intersection. He also cites the challenges the company faces with funding capital expenditures in light of its negative free cash flow and increasing debt-to-EBITDA ratios. Andrews remains skeptical about Albemarle’s financial strategy, especially considering the capital expenditures projected to rise significantly by 2027, and the re-phasing of growth investments that prioritizes current projects while deferring longer-term ones.
Furthermore, Andrews perceives the terms of the convertible equity as costly for Albemarle. He notes that the company will face an 11-15% increase in share count upon conversion, along with a substantial cash outlay for dividends that are not tax-deductible, equating to an expensive pre-tax interest payment. Despite the expectation that lithium prices may have nearly bottomed out, Andrews holds steady to his mid-to-long-term lithium price forecast of $15,000 per metric ton LCE. He believes that unless prices return to around $25,000, the company could find itself at another critical juncture, balancing sheet strength against growth ambitions. This perspective has led Andrews to reduce his price target for Albemarle’s stock, reflecting the net impact of the equity offering’s dilution.
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Albemarle (ALB) Company Description:
Albemarle Corp. is a specialty company, which engages in developing, manufacturing, and marketing of chemicals for consumer electronics, petroleum refining, utilities, packaging, construction, transportation, pharmaceuticals, crop production, food-safety, and custom chemistry services. It operates through the following segments: Lithium, Bromine Specialties, and Catalysts. The Lithium segment engages in developing and manufacture of basic lithium compounds, including lithium carbonate, lithium hydroxide, lithium chloride, and value-added lithium specialties and reagents. The Bromine Specialties segment consists of bromine and bromine-based business includes products used in fire safety solutions and other specialty chemicals applications. The Catalysts segment contain two product lines: clean fuels technologies, which is primarily composed of hydro processing catalysts, and heavy oil upgrading that comprises of fluidized catalytic cracking catalysts and additives. The company was founded in 1993 and is headquartered in Charlotte, NC.
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