Lithium Stocks; Livent Gains On Earnings, Outlook; Albemarle On Deck

May 5, 2022

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Livent (LTHM) kicked off the earnings reporting season for lithium stocks after Tuesday’s close by zooming past expectations and massively raising full-year guidance. LTHM stock surged in after-hours market action.

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As prices surge for EV materials that are in short supply, earnings also are due from Albemarle (ALB) late Wednesday. MP Materials (MP), 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. However, Livent offered encouraging updates on several planned and previously unannounced expansions that should boost capacity starting in 2023.

Livent Earnings

Estimates: Livent was expected to a post EPS of 13 cents a share vs. 2 cents a year ago, on 53% revenue growth to $140.15 million.

Results: Adjusted EPS surged to 21 cents, while revenue climbed 56% to $143.5 million.

Outlook: Livent raised its full-year guidance range for adjusted EBITDA to $290-$350 million, up 78% at the midpoint from the piror $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.

Lithium Stock Action

LTHM stock raced up 13% to 24.85 in late trading, after adding 2.6% during the regular session. If maintained, Livent looks poised to regain its 50-day line on Wednesday.

As of Monday’s close, Livent had fallen about 35% from its peak last November.

Albemarle also has fallen by about 0ne-third since hitting its record highs on Nov. 22. ALB stock is just below its 50-day line and further below its 200-day average. But ALB, like LTHM, has traded in a tight range recently, suggesting potential for an earnings spark to renew a rally.

On Tuesday, ALB stock rose 2.9%, then added 1.2% in late trade.

Meanwhile, MP Materials, after running up to a record high in late March, has shed one-third of its value over the past month. On Tuesday, MP stock added 2.2% to close just below 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.

But 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.

Lithium Contract Prices

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 scaleable, such as California’s Salton Sea. Industry analysts are more circumspect about prospects for quickly overcoming the technical challenges.

Albemarle and Livent may offer insight into what’s going on behind the scenes with contract negotiations. That has potential to move the stocks, since analysts value lithium stocks to a large extent on long-term contract prices.