Lithium Plays Are White Hot On Earnings, Outlooks
Livent (LTHM) and Albemarle (ALB) just supercharged lithium stocks. Livent zoomed past expectations and massively raised full-year guidance Tuesday evening. Industry giant Albemarle followed suit late Wednesday.
LTHM stock skyrocketed in Wednesday’s market action, flashing buy signals and giving a big lift to other lithium stocks such as Albermarle. ALB stock spiked Wednesday night, with other lithium plays continuing to rally.
As prices surge for EV materials that are in short supply, MP Materials (MP) is on tap late Thursday. MP Materials, whose rare earth materials are used in permanent magnet motors, reports late Thursday.
With no new capacity coming online this year, Livent said all the upside is coming from pricing. “With our expectations for pricing through the rest of 2022 remaining similar to today, Livent is significantly raising its full year guidance ranges,” CEO Paul Graves said on the earnings call.
Cowen analyst David Deckelbaum upgraded LTHM stock to outperform from market perform, hiking his price target to 33 from 25. He cited increased growth visibility and the extent to which Livent contracts are exposed to higher market prices.
Livent offered encouraging updates on several planned and previously unannounced expansions that should boost capacity starting in 2023. The company aims to quintuple output by 2030.
Estimates: Livent was expected to post EPS of 13 cents a share vs. 2 cents a year ago, on 53% revenue growth to $140.15 million.
Results: Livent earnings per share surged 950% to 21 cents. Revenue climbed 56% to $143.5 million, the second straight quarter of accelerating growth.
Outlook: Livent raised its full-year guidance range for adjusted EBITDA to $290-$350 million, up 78% at the midpoint from the prior $160-$200 million range. Revenue should range from $755-$835 million, up 39% at the midpoint from the range of $540-$600 million offered in mid-February.
LTHM Stock Action
LTHM stock vaulted 30% to 28.55 Wednesday, gapping above its 50-day and 200-day lines. Livent broke a down-sloping trend line from its all-time high of 33.04 on Nov. 22 and also moved above the April 5 short-term high of 28.32. Both offered aggressive entries into LTHM stock.
Lithium stocks also got a big boost from the Federal Reserve, as Fed chief Jerome Powell signaled that policymakers aren’t actively considering 75 basis points for the June and July meetings.
Estimates: Analysts expected Albemarle earnings per share to rise 49% to $1.64. Revenue was seen growing 22.5% to $1.02 billion.
Results: Albemarle earnings leapt 116% to $2.38 a share. Revenue swelled 36% to $1.13 billion. Both were easily the best gains in years.
Outlook: The lithium stock giant hiked its 2022 outlook “based on expectations of continued demand growth and tightness in the markets it serves.” In other words, higher prices for lithium and bromine.
It hiked its 2022 EPS target to $9.25-$12.25 from $5.65-$6.65 previously, far above consensus. It forecast sales of $5.2 billion – $5.6 billion, far above views for about $4.41 billion.
ALB stock vaulted 17% overnight. That’s after spiking 9.3% on Wednesday to 215.47, reclaiming the 50-day line, on Livent’s bullish outlook. ALB stock is set to vault above the 200-day line, break a trendline and clear key resistance around 248, offering multiple early entries.
MP Materials, after running up to a record high in late March, has shed one-third of its value over the past month. On Wednesday, MP stock rose 2.7% to just above its 200-day line.
Why Lithium Stocks Have Struggled
The bullish start to Q1 earnings is a welcome change. ALB, LTHM and most other lithium stocks have slumped this year. Sociedad Química y Minera de Chile (SQM) is a notable exception, though that’s partly because of its fertilizer business.
Albemarle’s disappointing earnings guidance issued on Feb. 16 triggered the sharpest leg down for lithium stocks. Investors have appeared impatient over higher costs, output constraints and contracts locked in at much-lower prices.
Albemarle said at the time that only 10% of its supply is sold at Chinese spot market prices that are up about 500% over the past year. Pricing for 40% of its supply is fixed, based on contracts reached before lithium prices surged in 2021, Albemarle said.
Lithium Contract Prices
Better news on the contract front wouldn’t be a surprise. If EV producers aren’t freaking out about supplies of lithium and other key EV materials, they probably should be.
For example, Morgan Stanley’s Adam Jonas wrote in a March 21 note that he expects a shortage of battery materials to limit Ford’s EV output to 500,000 in 2026, one-fourth of the company’s official target. GM says it will have capacity to build 2 million EVs in 2025, half in North America and the other half in China. But Jonas sees 300,000 as realistic, not including its hot-selling mini-car in China.
Both automakers told analysts last week that they’ve locked up the lithium supplies they need through mid-decade. However, they’re likely counting on new sources of lithium that have yet to prove scalable, such as California’s Salton Sea. Industry analysts are more circumspect about prospects for quickly overcoming the technical challenges.
Most automakers’ “EV plans have been drawn up without addressing the fundamental challenges of securing long-term supply,” Graves told analysts.
“As a result, there has been a real rush to source batteries, and in parallel, a growing realization that there is a fundamental shortage of lithium available in the market for at least the next couple of years.
For the most part, lithium supply agreements have been handled by automakers’ battery partner companies. But that’s changing, he said. Automakers are “becoming much more involved in the battery material procurement conversations, and they are seeking to sign commitments directly with battery material suppliers that will become far more important in the market in the 2024 or 2025 timeframe.”
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