Albemarle Corporation ALB is expected to benefit from its cost saving and productivity improvement actions amid certain headwinds including demand weakness due to the impacts of the coronavirus pandemic.
Shares of Albemarle are up 36.4% year to date, compared with the 3.8% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding ALB?
Albemarle is well placed to gain from long-term growth in the battery-grade lithium market. The market for lithium-ion batteries has a lot of untapped potential. Demand for these batteries are expected to go up with their increasing adoption in consumer electronic products as well as efforts to promote the use of electric cars by several governments to curb pollution.
The company is strategically executing its projects aimed at boosting its global lithium derivative capacity. It remains focused on investing in high-return projects to drive productivity.
Albemarle is also accelerating its $100 million cost-saving program. It expects to realize $50-$70 million of savings this year. The company is also implementing short-term cash management actions which is expected to deliver $25-$40 million of savings per quarter. Its cost actions are expected to support margins in 2020.
Moreover, Albemarle remains committed to deliver incremental returns to its shareholders. The company’s board, earlier this year, raised its quarterly dividend by 5% to 38.5 cents per share. The hike marked the 26th straight year of dividend increase by the company. Albemarle remains focused on maintaining its dividend payout. The company also remains committed to maintain adequate financial flexibility with ample liquidity.
A Few Worries
Albemarle is exposed to headwinds from weak lithium prices. Lithium prices remain under pressure amid oversupply in the market. Pricing weakness hurt sales in the company’s Lithium segment in the second quarter of 2020 and is likely to remain a headwind in the third quarter. Moreover, the coronavirus outbreak is hurting demand in the automotive market due to reduced automotive OEM (original equipment manufacturer) production. The company envisions the impact of the low OEM production to be more pronounced in the third quarter.
Lower Fluid Catalytic Cracking (“FCC”) volumes due to reduced transportation fuel consumption also hurt sales in the Catalysts segment in the second quarter. While the company is seeing a recovery in FCC demand, some softness in likely to continue in the third quarter. Albemarle is also seeing pressure on Hydroprocessing Catalysts (“HPC”) volumes due to lower oil prices and weaker fuel demand. HPC volumes are expected to remain under pressure through second-half 2020.
Moreover, Albemarle is facing some challenges associated with its Bromine Specialties unit. Sales in this unit was hurt by lower volumes resulting from the pandemic in the second quarter. The company expects the impacts of coronavirus to continue to hurt demand in the third quarter. It sees softness in certain markets including flame retardants and drilling fluids to offset stabilization in other areas including construction in the quarter.
Albemarle Corporation Price and Consensus
Albemarle Corporation price-consensus-chart | Albemarle Corporation Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Barrick Gold Corporation GOLD, Yamana Gold Inc. AUY and Eldorado Gold Corporation EGO.
Barrick Gold has a projected earnings growth rate of 80.4% for the current year. The company’s shares have gained around 51% in a year. It currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Yamana Gold has a projected earnings growth rate of 76.9% for the current year. The company’s shares have rallied roughly 66% in a year. It currently carries a Zacks Rank #2 (Buy).
Eldorado Gold has an expected earnings growth rate of 2,325% for the current year. The company’s shares have gained around 20% in the past year. It presently carries a Zacks Rank #2.
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