This week the Valens Securities team highlights our most interesting equity insight from across our tools and our analysis.
Macro tailwinds around Lithium, opportunity for significant volume and price expansion driven ROA’ expansion, and management’s strong alignment and confidence in execution point for reason for further ALB equity upside
ALB has seen steady plateau shifts in their UAFRS-based (Uniform) ROA over the past three cycles, from 2004-2016, as demand and pricing for lithium in particular has grown. With over 40% of ALB’s revenues coming from lithium, and significant opportunity for capacity growth the next several years, even market expectations for Uniform ROA (ROA’) to remain at current historically high levels do not appear to fully price in the potential that ALB has. Thanks to the potential for them to double their production of lithium, from a low cost production base, as lithium prices are likely to continue to climb due to strong battery demand, there is to reason to expect equity upside. While the market is pricing in 5% Uniform Asset growth, the company could produce 15%+ Uniform Asset growth, and while the market is pricing in EPS’ growth to remain relatively muted, the company could deliver better than 20% EPS’ growth the next several years.