On Thursday, UBS adjusted its financial outlook for Albemarle Corporation (NYSE:ALB), a specialty chemicals company. The firm's analyst set a new price target of $124, down from $132, while retaining a Neutral stance on the stock.
The revision comes amid expectations that Albemarle will consume approximately $1.9 billion in 2024 and around $0.8 billion in 2025, which includes an estimated annual dividend of about $0.2 billion. According to the analyst, the projected funding requirements for 2025 could be met through traditional debt market channels rather than resorting to additional convertible or equity raises.
The firm's forecast is based on a scenario where Albemarle achieves a free cash flow (FCF) conversion with higher EBITDA, maintaining a net debt to EBITDA ratio of approximately 2 times. This financial position is considered manageable in the current market conditions.
The analysis also anticipates a return to higher realized pricing for Albemarle's products, estimating a price range of $22-23 per kilogram, compared to the $19 per kilogram expected in 2024. With this increase, Albemarle is likely to raise capital expenditure (capex) spending into 2026 and 2027 to support growth while maintaining moderate cash usage.
The focus of the future capital expenditure is expected to be on enhancing supply chains in the United States and Western regions, which may come at a higher cost than currently modeled. The firm estimates that a price level of approximately $21 per kilogram would allow Albemarle to nearly break even on free cash flow in 2026 with lower capex spending.
In other recent news, Albemarle Corporation, a lithium production company, saw a significant decrease in its first-quarter 2024 adjusted net income, down to $2.4 million from $1.24 billion in the previous year. This was attributed to an 89% decline in lithium pricing within the Energy Storage segment year-over-year. Despite the lower earnings, Albemarle reiterated its financial guidance initially provided at the close of the fourth quarter in 2023.
Analysts from Argus and Piper Sandler maintained their Buy and Underweight ratings on Albemarle respectively, while Scotiabank downgraded the company from "Sector Outperform" to "Sector Perform". RBC Capital also retained its Outperform rating on Albemarle, highlighting the company's productivity improvement strategies.
In collaboration news, Albemarle reached an agreement with the Chilean Economic Development Agency (CORFO) that could potentially increase its lithium production quota by approximately 50%. Meanwhile, Chile's state-owned mining company ENAMI is planning its first lithium project by 2027 or 2028 in collaboration with Codelco. Albemarle's memorandum of understanding (MOU) with Patriot Battery Metals Inc. has concluded, but both companies intend to maintain a constructive relationship.
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