Livent Corp (NYSE:LTHM) Powering the Growth of Electric Vehicles

Livent Corp Powering the Growth of Electric Vehicles

Lithium Could Be the New Gold

Much of the world, especially Europe and China, has been rapidly moving toward the adoption of electric vehicles (EV). There are millions of EVs on the road, and the numbers will surge as the U.S. ramps up demand under Biden’s green energy plan.

For EV makers and the suppliers of the raw materials used to build the advanced-technology vehicles, the future looks extremely bullish.

To power an EV, the core component is the sophisticated battery cell technology that requires high-grade lithium.

The global lithium market was approximately 280 kilotons in 2020 and is predicted to grow at a compound annual growth rate (CAGR) of 10% from 2021 to 2026. (Source: “Lithium Market – Growth, Trends, Covid-19 Impact, and Forecasts (2021 – 2026),” Mordor Intelligence, last accessed September 9, 2021.)

Advertisement

Lithium is also used in other applications, so the demand for the metal will be massive. Some market watchers predict a lithium shortage as the demand for EVs surges.

To play the demand for lithium, I like the longer-term prospects for mid-cap company Livent Corp (NYSE:LTHM), a key lithium supplier.

Bullish Outlook for LTHM Stock

Livent stock was trading at a lowly $3.95 during the major pandemic sell-off in March 2020. LTHM stock subsequently staged an impressive rally to a high of $27.28 on August 13.

The uptrend was triggered by a bullish golden cross pattern in September 2020, followed by the current breakout from the ascending triangle pattern.

Up 34% this year and 196% over the past year, Livent stock has provided strong capital appreciation, but my view is this is only the beginning.

Chart courtesy of StockCharts.com

Trading in the immediate term will likely provide opportunities to enter LTHM stock at lower prices. Longer-term, there are prospects for far bigger gains from Livent stock.

EV Demand Leads Livent Corp’s Financial Estimates to Rise

Livent Corp’s last two years were disappointing in terms of revenue, but this is expected to change as EV sales rise.

Fiscal Year Revenues (Millions) Growth
2016 $364.1 N/A
2017 $347.4 31.5%
2018 $442.5 27.4%
2019 $388.4 -12.2%
2020 $288.2 -25.8%

(Source: “Livent Corp.” MarketWatch, last accessed September 9, 2021.)

Revenue estimates for the company have been on the rise, driven by the surging EV market, which should help boost Livent stock’s price.

Analysts estimate that Livent will ramp up its revenues by 32.5% to $381.7 million this year and by 19.5% to $456.1 million in 2022. (Source: “Livent Corporation (LTHM),” Yahoo! Finance, last accessed September 9, 2021.)

Based on the outlook for the EV market, the revenue estimates for the company may be somewhat conservative.

In the last five years, Livent Corp has steadily produced earnings before interest, taxes, depreciation, and amortization (EBITDA) income. The last two years saw declines, but I expect the EBITDA situation to improve as the company’s revenues ratchet higher.

Fiscal Year EBITDA (Millions) Growth
2016 $73.4 N/A
2017 $126.1 71.8%
2018 $181.7 44.1%
2019 $106.8 -41.2%
2020 $33.6 -68.5%

(Source: MarketWatch, op. cit.)

Livent Corp delivered generally accepted accounting principles (GAAP) earnings per share (EPS) profits in each year prior to making a loss in 2020, during the pandemic.

Fiscal Year GAAP Diluted EPS Growth
2016 $0.32 N/A
2017 $0.34 6.4%
2018 $0.99 188.9%
2019 $0.34 -65.4%
2020 -$0.13 -137.7%

(Source: MarketWatch, op. cit.)

Looking ahead, the consensus adjusted earnings estimates have been rising along with the revenues.

Livent is expected to report an adjusted $0.14 per diluted share this year, compared to a loss of $0.05 per diluted share in 2020. (Source: Yahoo! Finance, op. cit.)

Analysts estimate that the company’s adjusted earnings will nearly triple to $0.38 per diluted share in 2022.

Livent’s free cash flow (FCF) was positive until it turned negative in 2019 and 2020. I expect the company’s FCF to improve as its revenues and profits rise.

Fiscal Year FCF (Millions) Growth
2016 $25.3 N/A
2017 $9.4 -62.9%
2018 $18.4 95.7%
2019 -$126.2 -785.9%
2020 -$117.7 6.7%

(Source: MarketWatch, op. cit.)

On the balance sheet, Livent’s debt of $304.0 million is insignificant, given that the company’s market valuation is over $4.0 billion. (Source: Yahoo! Finance, op. cit.)

Analyst Take

Institutions are major holders of LTHM stock. About 434 institutions control most of the shares of Livent Corp. Insiders have also been adding LTHM stock over the past year. During the last six months, insiders bought 48,286 shares of Livent stock. (Source: Ibid.)

The company’s valuation isn’t cheap, but given Livent’s growth potential, it deserves the higher multiple.

My view is that the growth in EVs will drive the demand for lithium and provide strong tailwinds for Livent stock.

Read original at