On Wednesday, Scotiabank adjusted its stance on Albemarle Corporation (NYSE:ALB), a leading chemical company, shifting its rating from "Sector Outperform" to "Sector Perform." The firm also revised the price target for Albemarle's stock, lowering it to $135.00 from the previous target of $150.00.
The revision by Scotiabank comes after the firm reevaluated its financial model for Albemarle, taking into account the company's new definition of Adjusted EBITDA. This redefinition now incorporates the company's proportional share of income tax expense at its Winfield operations. The impact of this change was significant, as it led to an increase in EBITDA for the year 2023 by $0.8 billion, raising it to $3.6 billion from the earlier $2.8 billion.
Scotiabank's updated model projects Albemarle's EBITDA for the year 2025 to be $2.2 billion, which is comparable to an operating EBITDA of $1.7 billion. This projection is lower than the consensus EBITDA estimate of $1.9 billion by other analysts, some of whom have adapted their models to the new definition, while others have not.
Additionally, Scotiabank has modified its cash flow outlook for Albemarle, anticipating deeply negative free cash flow (FCF) in 2024, followed by moderately negative FCF in 2025 and 2026. The analyst noted that these forecasts could worsen if more conservative mid-term price assumptions are applied, moving away from the current $20/kg estimate.
The report concluded by mentioning that several enhancements and corrections were made to the model, including updates on the timing and progression of how projects are expected to ramp up. This comprehensive update to the financial model reflects the latest available data and trends affecting Albemarle's performance and outlook.
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