Morningstar Report-636d1777e26a17cb5799129d

Morningstar Equity Analyst Report | Report as of 13 Nov 2023 19:37, UTC | Reporting Currency: USD | Trading Currency: USD
| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 22
Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC
Last Price Fair Value Estimate Price/FVE Market Cap Economic MoatTM Equity Style Box Uncertainty Capital Allocation ESG Risk Rating Assessment1
116.98 USD 300.00 USD 0.39 13.73 USD Bil Narrow 4 Mid Value High Standard ;;;;;
10 Nov 2023 2 Nov 2023 16:39, UTC 10 Nov 2023 1 Nov 2023 05:00, UTC
Price vs. Fair Value
Fair Value: 300.00

2 Nov 2023 16:39, UTC
400
Last Close: 116.98
300 Over Valued
Under Valued
200
100
0
2018 2019 2020 2021 2022 YTD
Analysis
0.59 0.61 1.18 1.04 0.62 0.39 Price/Fair Value
-38.69 -3.32 104.08 59.52 -6.56 -45.50 Total Return %
Morningstar Rating
Total Return % as of 10 Nov 2023. Last Close as of 10 Nov 2023. Fair Value as of 2 Nov 2023 16:39, UTC.
Contents
Analyst Note (13 Nov 2023) Lithium: Market Reacts Negatively to Exxon's Plans to Enter
Business Description
Business Strategy & Outlook (2 Nov 2023) Lithium Production
Bulls Say / Bears Say (2 Nov 2023)
Analyst Note Seth Goldstein, CFA, Strategist, 13 Nov 2023
Economic Moat (2 Nov 2023)
Fair Value and Profit Drivers (2 Nov 2023)
Lithium producer stocks fell on ExxonMobil's announcement that the company is planning to enter the
Risk and Uncertainty (2 Nov 2023) lithium production industry through the development of a lithium project in the U.S. state of Arkansas.
Capital Allocation (16 Oct 2023) While Exxon provided little details on its plans, the company said it aims to begin lithium production in
Analyst Notes Archive 2027 and produce around 100,000 tons per year by 2030.
Financials
ESG Risk After reviewing Exxon's announcement, we see no reason to change our outlook for lithium, our price
Appendix
forecast, or our fair value estimates for Exxon and the five U.S.-listed lithium producers under our
Research Methodology for Valuing Companies
coverage. Accordingly, we maintain our outlook for lithium prices to remain volatile but average a little
Important Disclosure
over $30,000 per metric ton from 2023 to 2030. At current prices, we view all five of the U.S.-listed
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and lithium producers under our coverage as materially undervalued, with the stocks trading well below our
Investment Research Policy. For information regarding conflicts of interest, please
visit: http://global.morningstar.com/equitydisclosures. fair value estimates.
The primary analyst covering this company does not own its stock.
While we view the 2027 production timeline as slightly aggressive relative to typical lithium project
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1
Rating. timelines, Exxon's extensive expertise and experience in oil and natural gas extraction should result in
less of a learning curve relative to less experienced new entrants. Given our 2030 lithium demand
forecast of 2.5 million metric tons and for the market to generally be undersupplied during this decade,
we think excess demand will be there for all Exxon's production, assuming the project enters production
and ramps up on time. Further, with recent supply delay announcements, including from existing
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Morningstar Equity Analyst Report | Report as of 13 Nov 2023 19:37, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 22
Sector Industry
r Basic Materials Specialty Chemicals producers like Albemarle and Livent, we think the new supply will be needed to support our EV adoption
forecast of 40% globally by 2030.
Business Description
Albemarle is the world's largest lithium producer. Our
outlook for robust lithium demand is predicated upon Business Strategy & Outlook Seth Goldstein, CFA, Strategist, 2 Nov 2023
increased demand for electric vehicle batteries. Albemarle is one of the world's largest producers of lithium, which generates the majority of total
Albemarle produces lithium from its salt brine deposits in profits. It produces lithium through its own salt brine assets in Chile and the United States and two joint
Chile and the U.S. and its hard rock joint venture mines venture interests in Australian mines, Talison (Greenbushes) and Wodgina. The Chilean operation is
in Australia. Albemarle is a global leader in the
among the world's lowest-cost sources of lithium. Talison is one of the best spodumene resources in the
production of bromine, used in flame retardants. The
company is also a major producer of oil refining
world, which allows Albemarle to be one of the lowest-cost lithium hydroxide producers as spodumene
catalysts. can be converted directly into hydroxide. Wodgina is another high-quality spodumene asset that
provides Albemarle with a third low-cost resource, though not as high quality as Talison's. Albemarle
also owns resources in the U.S. and Argentina that are still in the early development phase, which
should allow it to boost its lithium volumes through the development of new projects.
As electric vehicle adoption increases, we expect high-double-digit annual growth in global lithium
demand. In response, Albemarle plans to expand its annual lithium production capacity from 200,000
metric tons in 2022 to at least 500,000 metric tons by 2030, though we expect sales volumes will be far
lower. We expect Albemarle will continue to increase its lithium refining capacity largely through
brownfield expansions at existing operations, including the expansion of recently acquired spodumene
conversion assets in China, though the company is also developing a fully integrated greenfield project
in the U.S.
Albemarle is the world's second-largest producer of bromine, a chemical used primarily in flame
retardants for electronics. Bromine demand should grow over the long term as increased demand for
use in servers and automobile electronics is partially offset by a decline in demand from TVs, desktops,
and laptops. Over the long term, we expect Albemarle to generate healthy bromine profits due to its
low-cost position in the Dead Sea.
Albemarle is also a top producer of catalysts used in oil refining and petrochemical production. These
chemicals are highly tailored to specific refineries. However, this business may be divested in the future.
Bulls Say Seth Goldstein, CFA, Strategist, 2 Nov 2023

u Albemarle has top-tier lithium assets through its brine operations in Chile and spodumene hard-rock
operations in Western Australia, which are among the lowest-cost sources of lithium production
globally.
u Lithium prices should remain well above the marginal cost of production through at least the remainder
of the decade, leading to excess profits and return on invested capital for Albemarle.
u Albemarle has low-cost bromine production through its highly concentrated brines in the Dead Sea and
ß
Competitors
Sociedad Quimica Y Minera De Chile SA
Albemarle Corp ALB Lithium Americas (Argentina) Corp LAAC Livent Corp LTHM
Pfd Registered Shs Series -B- SQM-B
Fair Value Fair Value Fair Value

300.00 34.00 38.00
Uncertainty : High Uncertainty : Very High Uncertainty : Very High
Last Close Last Close

116.98 Last Close
13.75
7.95
Analysis Security 1 Security 2 Security 3 Security 4
Economic Moat Narrow Narrow Narrow Narrow

Currency USD CLP CAD USD
Fair Value 300.00 2 Nov 2023 16:39, UTC —— 34.00 8 Nov 2023 20:53, UTC 38.00 31 Oct 2023 22:55, UTC
1-Star Price 465.00 175.00 59.50 66.50
5-Star Price 180.00 50.00 17.00 19.00
Significantly 12 Nov —— Significantly 12 Nov Significantly 12 Nov
Assessment
Undervalued 2023 Undervalued 2023 Undervalued 2023
Morningstar Rating QQQQQ10 Nov 2023 22:20, UTC —— QQQQQ10 Nov 2023 22:48, UTC QQQQQ10 Nov 2023 22:20, UTC
Analyst Seth Goldstein, Strategist — Seth Goldstein, Strategist Seth Goldstein, Strategist
Capital Allocation Standard Standard Standard Standard
Price/Fair Value 0.39 — 0.23 0.36
Price/Sales 1.39 1.27 44.32 3.13
Price/Book 1.39 2.70 0.74 1.42
Price/Earning 4.15 3.70 — 7.64
Dividend Yield 1.36% 15.07% — —
Market Cap 13.73 Bil 12,168.46 Bil 1.28 Bil 2.47 Bil
52-Week Range 113.18—334.55 41,250.00—99,800.00 7.45—15.80 13.37—35.81
Investment Style Mid Value Large Value Small Growth Small Core
Arkansas.
Bears Say Seth Goldstein, CFA, Strategist, 2 Nov 2023

u Lithium prices will fall if new supply comes online faster than demand, which will weigh on profitability.
Albemarle's plans to increase its lithium production capacity will prove value-destructive in the wake of
lower prices.
u Albemarle's bromine business will decline from weak demand for flame retardants as consumers shift
from computers to less bromine-intensive tablets and smartphones.
u Chile's plan to nationalize lithium could result in Albemarle being forced to sell a majority stake to the
government at a price around asset book value, destroying shareholder value.
Economic Moat Seth Goldstein, CFA, Strategist, 2 Nov 2023

Cost advantage and switching costs form the basis of Albemarle's narrow economic moat. Albemarle
possesses the lowest-cost sources of lithium and bromine production. The company also benefits from
ß
switching costs in its catalyst business, where refiners and petrochemical producers tend to stick with
existing catalysts tailored to their facilities in order to maximize product yields.
Globally, lithium carbonate is produced from either lower-cost evaporation of brine or higher-cost
mining of spodumene minerals. Albemarle has a cost advantage in lithium carbonate production due to
its lucrative brine assets in the Salar de Atacama in Chile.
Two factors make the Salar de Atacama the lowest-cost source of lithium in the world: dry conditions
and high lithium concentration. The Salar de Atacama is one of the driest places in the world and the
largest salt flat in Chile. It has an extremely high evaporation rate and low rainfall. Snow from the Andes
Mountains melts and flows underground into pools of brine, which have the highest concentration of
lithium globally. This high concentration makes the company one of the lowest-cost lithium producers
even among brine-based producers. The company pumps the brine above ground into a network of
large evaporation ponds. Water evaporates from the ponds over the course of approximately 18 months,
leaving behind concentrated lithium brine, which is then processed into lithium derivatives, including
lithium carbonate and lithium hydroxide for batteries. Albemarle has a long-term contract through 2043
with the Chilean government to extract around 80,000 metric tons of lithium per year.
Albemarle also has lithium brine assets in Silver Peak, Nevada. While not as advantaged as the prime
Chilean asset due to lower lithium concentration, this Nevada asset still sits on the lower half of the
lithium carbonate cost curve.
Albemarle owns a 49% joint venture interest in Talison's operations in Greenbushes, Western Australia.
The Talison mine produces spodumene, a hard rock mineral extracted through traditional mining
methods, that is the feedstock converted into a downstream lithium product. Traditionally, spodumene-
based production has set the marginal cost for lithium carbonate, and we do not view Talison as
moatworthy in lithium carbonate production.
However, lithium hydroxide can be produced directly from spodumene, whereas brine-based operations
must first produce carbonate and then convert to hydroxide. Although lithium hydroxide has traditionally
made up a small portion of total lithium demand, electric vehicle batteries will increasingly use lithium
hydroxide as hydroxide-based battery chemistries generally allow electric vehicles to have a greater
range than lithium carbonate. As a result, we expect lithium hydroxide demand growth will outpace
lithium carbonate as electric vehicle adoption increases.
The ability to directly produce hydroxide from spodumene makes low-cost spodumene producers the
lowest-cost lithium hydroxide producers globally. The Talison operation is one of the highest-quality
spodumene deposits and sits on the low end of the lithium hydroxide cost curve, owing to its geological
advantage. Talison's spodumene has roughly double the lithium concentration of most other spodumene
production, and we view the operation as moatworthy based on Albemarle's cost-advantaged lithium
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hydroxide production.
Further, Albemarle's joint venture with Mineral Resources at the Wodgina operation in Western
Australia will produce low-cost lithium hydroxide. While hydroxide made from Wodgina spodumene will
not be as low-cost as hydroxide made from Talison spodumene, the Wodgina operation will still sit on
the low end of the lithium hydroxide cost curve.
Albemarle's advantaged position in bromine comes from its low-cost and long-lived asset in the Dead
Sea and Arkansas. Production costs are largely determined by concentration, as higher concentration
mean that less water needs to be evaporated to produce bromine from brine. The Dead Sea is the
lowest-cost bromine source, with concentrations of 10,000 parts per million, while Arkansas has
concentrations of 5,000 parts per million. These assets have 2.5-5.0 times the concentration of the next-
best reserves in India and 25-50 times the concentration of producers in China. Albemarle's Arkansas
asset has more than 70 years of reserves remaining. The Dead Sea, for all intents and purposes, is an
inexhaustible asset, given its enormous reserves compared with production volume. Albemarle's Dead
Sea production comes from its 50% interest in Jordan Bromine, which it operates with Arab Potash.
The company benefits from switching costs in refining catalysts, which are tailored to specific refineries
to maximize customer profits. Refiners are essentially a commodity spread business, earning profits by
converting crude oil into refined end products, including gasoline and diesel. Catalysts used in fluidized
catalytic cracking help refiners reduce costs by processing heavier crudes or realizing higher prices
through more-refined products. Variations in regional crude oil quality and refinery specifications
require Albemarle to work closely with customers to formulate customized catalysts for each refinery.
These catalysts make up a small portion of a refiner's costs and are priced based on the value they
contribute to customers through improving yields, quality, and output. Catalysts provide value to
refiners far in excess of their cost. Albemarle, W.R. Grace, and BASF make up the majority of the FCC
catalyst market. Existing catalyst providers hold the advantage of being able to tweak their catalyst over
time and maintain customer relationships, as catalyst suppliers continually improve refiner economics.
Because of the highly customized nature of the product, it is difficult for competitors to provide products
that offer greater value than existing catalysts, particularly as they must undergo trial periods to
demonstrate superior efficacy.
Fair Value and Profit Drivers Seth Goldstein, CFA, Strategist, 2 Nov 2023
Our fair value estimate is $300 per share. We assume roughly a 10% weighted average cost of capital.
We use a multiple of 11.5 times midcycle EBITDA to value free cash flows generated beyond our 10-year
explicit forecast horizon.
The bulk of growth will come from lithium. We expect contract lithium prices will rise on average in
2023. Lithium carbonate spot prices, which tend to be a leading indicator of contract prices, are
ß
currently around $23,000 per metric ton (based on published indexes), down from $75,000 at the end of
2022, due to slowing lithium purchases as a result of inventory destocking. However, as demand growth
remains strong and outpaces supply, we expect prices will stabilize during the end of the year and rise
in 2024.
Longer term, we expect lithium prices will remain well above our long-term forecast for lithium
carbonate at $12,000 per metric ton through the rest of the decade. Based on our price elasticity
analysis, we forecast index prices will average a little over $30,000 per metric ton range during the
remainder of the decade. We expect high-quality lithium hydroxide used in long-range batteries will
continue to sell at a premium to carbonate, reflecting higher conversion costs.
Our price forecast is based on our forecast for the marginal cost of lithium production on an all-in-
maintaining cost basis. We expect lithium demand to grow at nearly a 20% annual rate from around
800,000 metric tons in 2022 to over 2.5 million metric tons by 2030. By 2030, roughly 95% of lithium
demand will come from batteries that require high-quality lithium with few impurities. To meet demand,
higher-cost supply will need to come online from lower-quality resources that will require higher
processing costs.
We forecast Albemarle's lithium sales volumes will more than triple by 2030 but be less than 400,000
metric tons, well below management's long-term goal for at least 500,000 metric tons. We think
management will likely reduce long-term growth spending over the next couple of years in response to
lower spot prices. Regardless, Albemarle's low costs should allow it to benefit tremendously from
additional volume sold. Higher prices and volumes will help Albemarle's energy storage (lithium)
segment EBITDA more than double from 2022 levels by 2030, even with lower lithium prices versus the
$70,000 per metric ton average index price in 2022.
We forecast specialties (bromine and nonbattery lithium) will see a near-term decline due an an
economic slowdown but should grow in the low to mid-single digits over the long term. Brominated
flame retardant demand should see growth from an increase in 5G devices, Internet of Things
technology, servers, and increased content per vehicle in automobile electronics. Combined with
Albemarle's cost reductions, we expect specialties EBITDA margins will fall to the low 20s in the near
term but then expand to the mid-30s over the next decade.
After a COVID-19-related decline saw Ketjen (catalysts) profits fall 60% from 2019 to 2021, we expect a
gradual recovery as FCC sales grow broadly in line with transportation fuel demand and HPC sales
recover from trough levels. Our valuation does not include a potential divestiture of the business.
Given the wide range of potential lithium prices, we see a range of outcomes for Albemarle. In a
marginal cost pricing scenario, we forecast lithium prices to average $20,000 per metric ton for the
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remainder of the decade, which is in line with our estimate for the marginal cost of production on an all-
in sustaining cost basis. In this scenario, our fair value estimate would be $165 per share as Albemarle
would realize lower prices and profits.
Risk and Uncertainty Seth Goldstein, CFA, Strategist, 2 Nov 2023

We assign Albemarle a High Morningstar Uncertainty Rating.
The biggest risk for Albemarle is volatile lithium prices. Prices could decline if EV demand grows more
slowly than expected or new low-cost supply ramps up quicker than demand. New batteries, such as
sodium-ion, could overtake lithium as the preferred energy storage resource.
Lithium production could ramp up more quickly than demand warrants if producers bring too much
supply to the market. Further, new lithium production technologies could alter the cost curve in
carbonate and hydroxide. Albemarle faces execution risk in ramping up its lithium production, which
include production delays and cost overruns. Albemarle is also subject to political risk, especially in
Chile. President Gabriel Boric announced plans to nationalize lithium, where the Chilean government
would own a majority stake in all projects. If this occurs, Albemarle could be forced to sell a 51% stake
to the Chilean government at a price as low as asset book value to extend its lease when it expires in
2043.
The largest ESG risks come from potential new regulations. Regulations that limit emissions in the
bromine business could hurt profit margins as Albemarle's profits come from its cost advantage, rather
than pricing power, and it may not be able to pass along the cost increases. We see this as having a
moderate probability and materiality.
Another risk is that Albemarle may have its products banned due to the environmental impact, which
has occurred before in the bromine business. We see a moderate probability but a low materiality as
Albemarle doesn't rely on a single product and could likely modify its products to meet new regulations,
similar to what occurred when products have been banned.
Lithium customers may require Albemarle to reduce its emissions. We see a moderate probability but
low materiality; all lithium producers would be subject to the same requirements, so the company could
likely pass along these costs.
Capital Allocation Seth Goldstein, CFA, Strategist, 16 Oct 2023

We assign a Standard Morningstar Capital Allocation Rating to Albemarle based on our framework that
assesses the balance sheet, investment decisions, and shareholder distributions.
We view Albemarle's balance sheet as sound. The company's debt is manageable, and we think the
balance sheet should remain in good health over the next few years.
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We see management's investments as fair. We are in favor of management's investment strategy to

expand its low-cost lithium refining capacity, which we think will allow the company to take advantage
of growing lithium demand from increased electric vehicle adoption. We are also in favor of
management's focus on growing its low-cost lithium hydroxide production through the expansion of
relatively lower-capital-intensity operations such as in China or through brownfield capacity expansions.
Given our view for lithium prices to remain elevated, we think these investments will create significant
shareholder value over the long run.
Alternatively, management's former lithium pricing strategy hurt shareholder value in the past. The
previous pricing strategy limited the company's upside and did not prevent downside when prices fell.
However, we credit management with the willingness to change its approach. In 2023, Albemarle
moved to a two-tier pricing system with 20% of battery quality lithium sold at short-term prices based on
spot prices, after beginning to transition customers off of long-term fixed price contracts in 2022. The
remaining 80% will be sold at index-referenced prices, some of which have a set cap and floor but
fluctuate based on market prices.
We are in favor of this move to shorter-term pricing that closer reflects market dynamics. As a low-cost
producer, the company should remain profitable even when prices hit a cyclical low, which in our view,
diminishes the need to lock in prices. Notably, the initial results of the new pricing system have led to
Albemarle seeing its prices rise to more closely reflect spot prices throughout 2022 when the new
pricing strategy began to be implemented in contracts with customers. However, we will wait to see
how the company's realized prices evolve before revisiting our rating.
Finally, we think distributions are appropriate. The current policy to increase dividends seems
appropriate as we forecast dividends to average around 30% of net income over the next five years.
J. Kent Masters was elected CEO and board chair in April 2020. Masters brings nearly 15 years of
experience with Albemarle's lithium business in a board role. He sat on the board of Rockwood, the
lithium company Albemarle acquired, from 2007 until the acquisition closed in 2015. He then became a
member of Albemarle's board and served as lead independent director from 2018 to 2020. Masters
brings engineering and specialty chemical leadership experience to Albemarle. Previously, he was CEO
of Foster Wheeler, a global engineering and construction contractor, and a member of the executive
board of Linde, a global industrial gas provider.
Management’s long-term compensation is based on total shareholder return over a rolling three-year
period. Short-term compensation is based on annual adjusted EBITDA and adjusted free cash flow.
While the shareholder return metric aligns management with shareholders over the short term, we
would prefer compensation metrics to include return on invested capital to encourage management to
position the business for long-term success.
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Analyst Notes Archive
Lithium Stocks Sell Off on Broker Downgrade Based on Price Outlook Below Marginal Cost of
Production Seth Goldstein, CFA, Strategist, 6 Nov 2023
On Nov. 6, shares of lithium producers Albemarle, Livent, and SQM fell on a broker downgrade. After
reviewing the note, we see no reason to change our fair value estimates for the three narrow-moat
companies. At current prices, we view all three lithium producers as materially undervalued relative to
our base-case fair value estimates. Albemarle and Livent both trade at roughly 40% of our $300 and $38
fair value estimates, respectively, and in 5-star territory. SQM trades at a little less than 50% of our $95
per share fair value estimate. Along with Lithium Americas and Lithium Argentina, we view these five
stocks as the most undervalued among our specialty chemicals coverage.
The broker downgrade is predicated upon the lithium price falling to $15,000 per metric ton in 2026,
which the broker views as the marginal cost of production. We think this price is 25% below the
marginal cost of production, which we view as $20,000 on an all-in sustaining cost basis. As a result,
even if lithium prices returned to a marginal cost of production structure, we think prices of $15,000 per
metric ton are unlikely to occur for long as this level would cause high-cost supply to shut down and exit
the market, leaving the market undersupplied and boosting prices in fairly short order.
We remain bullish on lithium over the long term. While spot prices have fallen in the second half of the
year, we think prices will stabilize heading into 2024, likely around $20,000 per metric ton. However, we
forecast prices will rise in 2024 due to double-digit demand growth, the end of inventory destocking
among battery producers, and new supply delays. Combined, we think this sets up 2024 to shift back to
undersupply conditions, leading to higher prices. We forecast lithium carbonate spot prices will average
$30,000 per metric ton in 2024, above current prices of a little less than $23,000.
Albemarle Earnings: Falling Lithium Prices Drive Lower Outlook Seth Goldstein, CFA, Strategist, 2 Nov
2023
Albemarle's third-quarter results and management's updated guidance reflected the decline in lithium
spot prices that will weigh on near-term profits. In response, management said it will review the
company's lithium growth investments with a goal to preserve financial flexibility. We think the likely
outcome will be Albemarle slowing its lithium capacity investment, which is in line with how the
company has historically operated during a lithium price downturn.
We updated our model to assume lower volumes and reduced capital expenditures throughout our 10-
year forecast period. We also updated our model for lower profits in the nonlithium battery segments
and lower near-term lithium prices. As a result, we reduced our fair value estimate to $300 per share
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from $350. Of the $50 reduction, $30 comes from our outlook for lower volumes, $15 is from our reduced
forecasts for specialties and Ketjen segment profits, and $5 is due to lower near-term lithium prices. Our
narrow moat rating is unchanged.
We view Albemarle shares as materially undervalued, trading in 5-star territory and at roughly 40% of
our updated fair value estimate. We think the market is concerned that lithium spot prices will fall
further to the end of 2023 and into 2024 due to oversupply concerns. We disagree and expect prices will
rise in 2024 as battery producer inventory destocking runs its course. In recent days, multiple top-seven
lithium producers have announced supply delays or production cuts or signaled a review of growth
plans in response to lower lithium prices. Further, recent announcements from marginal-cost producers
in China indicate supply is beginning to shut down in response to lower prices. We think this will result
in the market balancing over the next couple of quarters. As demand grows, we see lithium returning to
structural undersupply in 2024, leading to higher prices.
Lithium: Stocks Sell Off on Broker Downgrade Based on Lower Price Outlook Seth Goldstein, CFA,
Strategist, 18 Oct 2023
On Oct. 18, lithium stocks plummeted following a sell-side broker's downgrade for Albemarle and SQM.
The downgrade is due to the outlook that the lithium market will move into a supply surplus in 2024 and
2025, leading to lower lithium prices. We disagree and continue to forecast a price rebound as strong
demand growth outpaces supply leading to a supply deficit in 2024.
In our view, rising EV adoption and the increasing buildout of energy storage systems will keep lithium
demand growing to surpass 1 million metric tons in 2024, from 800,000 in 2022, eventually hitting 2.5
million metric tons by 2030. While we see rising supply, we think enough projects will face delays to
keep a market deficit as demand grows. If there were little to no supply delays, the market could move
to a supply surplus, and falling prices, over the next several years. However, given that much of the new
supply will come from greenfield projects, which have historically faced delays in nearly all resource
extraction industries, we think a scenario where all new supply enters the market on time is unlikely to
occur.
With no changes to our outlook, we maintain our forecast for lithium prices to rise in 2024 and to
average a little over $30,000 per metric ton from 2023 through 2030. While we expect prices will remain
volatile, we think a market deficit will generally keep prices above the marginal cost of production of
$20,000 per metric ton on an all-in-sustaining cost basis. With our changes to our forecast, our fair
value estimates for the lithium producers under our coverage are also unchanged. We view the U.S.-
listed lithium stocks under our coverage as materially undervalued, with Oct. 18's selloff offering a
larger margin of safety for long-term investors.
Based on moat and valuation, our top picks are narrow-moat Albemarle, narrow-moat Livent, and
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narrow-moat Lithium Argentina, all of which trade in 5-star territory at less than 50% of our fair value
estimates.
Albemarle: Decision Not to Pursue Liontown Acquisition Is Value Neutral as Deal Was a Fair Price
Seth Goldstein, CFA, Strategist, 16 Oct 2023
Albemarle announced it would walk away from a previously announced acquisition of Liontown
Resources following the end of the company's due diligence period. We thought the deal made
strategic sense for Albemarle as it would have provided a third high-quality lithium hard rock resource.
However, the company’s all-cash offer price of AUD 3 per share was a fair price, resulting in neither
value creation nor value destruction from the acquisition. Accordingly, we maintain our $350 per-share
fair value estimate for Albemarle following the company's decision not to pursue the deal. Our narrow
moat rating is also unchanged.
At current prices, we view Albemarle shares as materially undervalued with the stock trading in 5-star
territory and more than 50% below our fair value estimate. We view Albemarle as one of our top lithium
picks as the current valuation offers strong upside, while we view it as having relatively lower risk than
the other lithium producers under our coverage.
Albemarle cited growing complexities with the proposed transaction as a factor in management's
decision not to pursue the deal. Over the past several weeks since the deal was announced, Hancock
Prospecting, an iron ore miner in Australia, amassed a 19.9% equity stake in Liontown. We think
Albemarle did not want to raise its bid to buy out Hancock and likely did not want to partner on the
project, leading to Albemarle walking away. Regardless, with multiple high-quality spodumene
resources under development throughout the world, we think Albemarle could find another acquisition
target to grow its upstream volumes if the company chooses to pursue another deal.
With the Liontown lithium concentrate (spodumene) acquisition, we had previously forecast Albemarle's
2030 volumes would be closer to the high end of management's 500,000 to 600,000 metric ton range,
but we now forecast it to be closer to the lower end.
We Forecast 40% Electric Vehicle Adoption by 2030, Up From 10% in 2022 Seth Goldstein, CFA,
Strategist, 12 Sep 2023
In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than
6% in 2021. Much of the growth occurred in China, which has been a leader in EV sales over the past
decade. However, with national EV subsidies in China expiring in 2022 and far lower sales in the U.S.
and Europe, the market questions if EV sales can continue to grow without subsides.
The growth can and will continue. By 2030, we forecast EVs will account for 40% of global auto sales.
While EVs will still cost more upfront for most auto categories, we expect falling battery costs will drive
ß
cost parity on a total cost of ownership basis over the next couple of years in the majority of autos.
Consumer function concerns are rapidly disappearing. As EVs have reached range parity with internal
combustion engines and charge times have fallen, the buildout of chargers across highways and in
cities throughout the world will drive higher EV sales even without subsidies.
We see strong opportunities for investors throughout the EV supply chain. While multiple companies
will benefit from rising EV sales, our top picks are largely based on valuation. Our top automaker picks
are General Motors and BYD. For auto suppliers, our top pick is BorgWarner.
Batteries, which are needed in all EVs, will see strong growth. Our top pick is Samsung SDI. In
technology, semiconductors and components will benefit from increased content per vehicle. Our top
picks are Infineon for automotive-related semiconductors and Sensata for components.
In materials, lithium is our preferred resource as lithium is the vital resource needed in all EV batteries.
Albemarle is our top pick. Outside of lithium, copper, cobalt, and nickel should all see rising demand,
and we like Glencore. Specialty chemicals will see increased content per vehicle. Our top pick is
Celanese. In EV charging, ChargePoint is our top pick, while we like Edison International for charging
infrastructure.
Albemarle: Liontown Resources Acquisition Value Neutral but Boosts Long-Term Lithium Volumes
Seth Goldstein, CFA, Strategist, 5 Sep 2023
Albemarle announced its proposal to acquire Liontown Resources in an all-cash deal for AUD 3 per
share, which amounts to roughly a $4.3 billion acquisition. The deal has been months in the making, as
Albemarle first approached Liontown's board of directors in October 2022 with a proposal to acquire the
firm for AUD 2.20 per share.
We think the acquisition of Liontown makes strong strategic sense for Albemarle. Liontown is in the
later construction phase of its first lithium hard rock project, Kathleen Valley, which is a larger, high
quality resource in Western Australia that would provide Albemarle with a third hard rock resource to
feed its downstream lithium chemicals plants. By securing a third resource, Albemarle should have
enough resources to meet management's goal of 500,000 to 600,000 metric tons of lithium volumes by
2030.
While Albemarle had to raise its offer roughly 36% from the original price, we view the deal as value
neutral. We think the acquisition will close as planned in 2024, around the time Liontown is finishing
construction on the first phase of Kathleen Valley. After updating our model to incorporate the
acquisition, we maintain our $350 per share fair value estimate as the acquisition is offset by high long-
term volumes. We previously forecast Albemarle's 2030 volumes would be closer to the low end of
management's 500,000 to 600,000 metric ton range, while we now forecast closer to the higher end.
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Our narrow-moat rating is also unchanged.
At current prices, we view Albemarle shares as materially undervalued with the stock trading in 5-star
territory and at more than 40% below our fair value estimate. We view Albemarle as one of our top
lithium picks as the current valuation offers strong upside, while we view Albemarle as having relatively
lower risk than the other lithium producers under our coverage. K
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Competitors Price vs. Fair Value
Sociedad Quimica Y Minera De Chile SA Pfd Registered Shs Series -B- SQM-B
Last Close: —
73K Fair Value: —
—
55K Over Valued

Under Valued
36K
18K
0
Analytics
2018 2019 2020 2021 2022 YTD
— — — — — — Price/Fair Value
-21.69 -23.21 75.29 32.39 73.33 -26.68 Total Return %
Morningstar Rating
No data available
Total Return % as of 13 Nov 2023. Last Close as of —. Fair Value as of —.
Lithium Americas (Argentina) Corp LAAC
Fair Value: 34.00

8 Nov 2023 20:53, UTC
40
Last Close: 7.95
30 Over Valued
Under Valued
20
10
0
2018 2019 2020 2021 2022 YTD Analytics
— — — 0.65 0.29 0.23 Price/Fair Value

-61.45 -3.48 284.13 130.41 -30.28 -15.54 Total Return %
Morningstar Rating
Total Return % as of 10 Nov 2023. Last Close as of 10 Nov 2023. Fair Value as of 8 Nov 2023 20:53, UTC.
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Livent Corp LTHM
Fair Value: 38.00

31 Oct 2023 22:55, UTC
40
Last Close: 13.75
30 Over Valued
Under Valued
20
10
0
2018 2019 2020 2021 2022 YTD Analytics
0.77 0.52 1.35 1.11 0.52 0.36 Price/Fair Value

— -38.04 120.35 29.41 -18.50 -30.80 Total Return %
Morningstar Rating
Total Return % as of 10 Nov 2023. Last Close as of 10 Nov 2023. Fair Value as of 31 Oct 2023 22:55, UTC.
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Morningstar Historical Summary

Financials as of 30 Sep 2023
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
Revenue (USD Mil) 2,394 2,446 2,826 2,677 3,072 3,375 3,589 3,129 3,328 7,320 7,261 9,882
Revenue Growth % -5.0 2.1 15.6 -5.3 14.8 9.9 6.4 -12.8 6.4 120 54.5 76.7
EBITDA (USD Mil) 677 358 652 807 759 1,048 834 679 449 2,857 1,535 2,508
EBITDA Margin % 28.3 14.6 23.1 30.1 24.7 31.1 23.2 21.7 13.5 39.0 21.1 25.4
Operating Income (USD Mil) 610 327 471 536 572 701 666 506 502 2,478 1,102 1,935
Operating Margin % 25.5 13.4 16.7 20.0 18.6 20.8 18.6 16.2 15.1 33.9 15.2 19.6
Net Income (USD Mil) 413 133 335 644 55 694 533 376 124 2,690 2,191 3,324
Net Margin % 17.3 5.5 11.9 24.0 1.8 20.5 14.9 12.0 3.7 36.8 30.2 33.6
Diluted Shares Outstanding (Mil) 84 79 112 113 112 109 106 107 117 118 118 118
Diluted Earnings Per Share (USD) 4.90 1.69 3.00 5.68 0.49 6.34 5.02 3.52 1.06 22.84 18.60 28.21
Dividends Per Share (USD) 0.96 1.10 1.16 1.22 1.28 1.34 1.47 1.54 1.56 1.58 1.20 1.60
Valuation as of 31 Oct 2023

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Price/Sales 2.1 1.8 1.7 2.8 5.0 2.6 2.2 4.8 8.0 4.6 2.1 1.5
Price/Earnings 18.4 12.7 45.5 16.4 45.7 24.3 13.6 41.2 123.5
Years 16.4 5.1 3.8
Price/Cash Flow 10.9 8.8 15.2 19.6 40.7 14.1 15.1 18.8 32.2 31.5 7.6 5.7
Dividend Yield % 1.51 1.83 2.07 1.42 1.0 1.74 2.01 1.04 0.67 0.73 0.94 1.26
Price/Book 3.5 3.2 2.0 2.9 3.6 2.3 2.0 3.8 4.8 3.8 2.0 1.5
EV/EBITDA 8.5 14.2 15.2 16.0 19.6 8.8 11.2 27.4 64.1 9.6 0.0 0.0
Operating Performance / Profitability as of 30 Sep 2023 Years Years Years Years Years Years Years Years Years Years Years
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
ROA % 11.8 3.0 4.5 7.2 0.7 9.0 6.1 3.7 1.2 20.3 — 20.3
ROE % 23.9 8.9 14.5 18.3 1.5 19.1 14.2 9.2 2.5 39.5 — 40.0
ROIC % 16.7 4.9 7.3 10.5 2.1 13.6 9.4 5.8 2.1 28.7 — 28.8
Asset Turnover 0.7 0.6 0.4 0.3 0.4 0.4 0.4 0.3 0.3 0.6 — 0.6
Financial Leverage
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Debt/Capital % 39.3 62.1 49.1 35.9 27.8 28.1 43.1 40.3 27.5 29.3 26.1 —
Equity/Assets % 45.4 26.0 33.9 46.5 47.4 47.3 39.9 40.8 51.3 51.6 52.4 —
Total Debt/EBITDA 1.6 8.2 5.9 2.9 2.4 1.6 3.8 5.4 5.6 1.2 2.4 —
EBITDA/Interest Expense 21.5 8.7 8.0 12.4 6.6 20.0 14.5 9.3 7.3 23.2 18.8 23.7
Morningstar Analyst Historical/Forecast Summary as of 02 Nov 2023

Financials Estimates Forward Valuation Estimates
2021 2022 2023 2024 2025
Fiscal Year, ends 31 Dec 2022 2021 2022 2023 2024 2025
Price/Sales 8.2 3.5 1.4 1.5 1.1
Revenue (USD Mil) 3,328 7,320 9,470 9,426 12,437 Price/Earnings 57.9 9.9 5.2 6.0 2.9
Revenue Growth % 6.4 120.0 29.4 -0.5 32.0 Price/Cash Flow — — — — —
EBITDA (USD Mil) 871 3,476 3,237 2,885 5,940 Dividend Yield % 0.7 0.7 1.4 1.4 1.4
EBITDA Margin % 26.2 47.5 34.2 30.6 47.8 Price/Book 4.8 3.2 1.3 1.1 0.8
EV/EBITDA 33.0 7.9 4.9 5.5 2.7
Operating Income (USD Mil) 502 2,478 1,574 1,586 4,251
Operating Margin % 15.1 33.9 16.6 16.8 34.2
Net Income (USD Mil) 470 2,586 2,660 2,279 4,699
Net Margin % 14.1 35.3 28.1 24.2 37.8
Diluted Shares Outstanding (Mil) 117 118 118 118 118
Diluted Earnings Per Share(USD) 4.04 21.96 22.58 19.37 39.93
Dividends Per Share(USD) 1.56 1.58 1.60 1.62 1.64
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ESG Risk Rating Breakdown
Values
Exposure Subject Subindustry (52.0) u Exposure represents a company’s vulnerability to ESG
Company Exposure 1
56.6 risks driven by their business model
56.6
u Exposure is assessed at the Subindustry level and then
– Manageable Risk 50.7 High
2 0 55+ specified at the company level
Unmanageable Risk 5.9 u Scoring ranges from 0-55+ with categories of low, me-
Low Medium High
dium, and high-risk exposure
Management Values u Management measures a company ’s ability to manage

Manageable Risk 50.7 ESG risks through its commitments and actions
58.7%
– Managed Risk3 29.7 Strong
u Management assesses a company's efficiency on ESG
Management Gap4 20.9 100 0 programs, practices, and policies

Strong Average Weak u Management score ranges from 0-100% showing how
Overall Unmanaged Risk 26.8 much manageable risk a company is managing
ESG Risk Rating ESG Risk Rating Assessment5

26.81
Medium
Negligible Low Medium High Severe ESG Risk Rating is of Nov 01, 2023. Highest Controversy Level is as of Nov
08, 2023. Sustainalytics Subindustry: Specialty Chemicals. Sustainalytics
ESG Risk Ratings measure the degree to which a company’s value is impacted by environmental, social, and governance provides Morningstar with company ESG ratings and metrics on a monthly
risks, by evaluating the company’s ability to manage the ESG risks it faces. basis and as such, the ratings in Morningstar may not necessarily reflect
current Sustainalytics’ scores for the company. For the most up to date rating
1. A company's Exposure to material ESG issues 2. Unmanageable Risk refers to risks that are inherent to a particular business model that cannot be managed by and more information, please visit: sustainalytics.com/esg-ratings/.
programs or initiatives 3. Managed Risk = Manageable Risk multiplied by a Management score of 58.7% 4. Management Gap assesses risks that are not
managed, but are considered manageable 5. ESG Risk Rating Assessment = Overall Unmanaged Risk = Management Gap plus Unmanageable Risk
Peer Analysis 01 Nov 2023 Peers are selected from the company's Sustainalytics-defined Subindustry and are displayed based on the closest market cap values
Company Name Exposure Management ESG Risk Rating
Albemarle Corp 56.6 | High 0 55+ 58.7 | Strong 100 0 26.8 | Medium 0 40+
Celanese Corp 50.8 | Medium 0 55+ 54.0 | Strong 100 0 26.1 | Medium 0 40+
Sociedad Quimica Y Minera De Chile SA 64.6 | High 0 55+ 64.5 | Strong 100 0 27.2 | Medium 0 40+
Lithium Americas (Argentina) Corp 70.5 | High 0 55+ 26.5 | Average 100 0 53.5 | Severe 0 40+
Livent Corp 50.9 | Medium 0 55+ 70.4 | Strong 100 0 19.0 | Low 0 40+
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Appendix
Historical Morningstar Rating
Albemarle Corp ALB 10 Nov 2023 22:20, UTC
December November October September August July May May April March February January
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ
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Lithium Americas (Argentina) Corp LAAC 10 Nov 2023 22:48, UTC

- QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ
QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQ QQQQ QQQQ
QQQQ QQQ - - - - - - - - - -
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Livent Corp LTHM 10 Nov 2023 22:20, UTC

- QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ
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QQQ QQ QQ QQQ QQ QQQ QQQ QQQ QQ QQQ QQ QQ
QQ QQQ QQQ QQQQ QQQQ QQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ
QQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQQ QQQQ QQQQ
QQQQ QQQ QQQ - - - - - - - - -
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Overview turns on invested capital (or ROIC) over and above our es- rive our annual free cash flow forecast.
At the heart of our valuation system is a detailed projec- timate of a firm’s cost of capital, or weighted average
Stage II: Fade
tion of a company’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are
The second stage of our model is the period it will take
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five
the company ’s return on new invested capital—the re-
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching
turn on capital of the next dollar invested (“RONIC”)—to
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale.
decline (or rise) to its cost of capital. During the Stage II
ally standardized, proprietary discounted cash flow, or
Companies with a narrow moat are those we believe are period, we use a formula to approximate cash flows in
DCF, modeling templates. We use scenario analysis, inde-
more likely than not to achieve normalized excess returns lieu of explicitly modeling the income statement, balance
pth competitive advantage analysis, and a variety of other
for at least the next 10 years. Wide-moat companies are sheet, and cash flow statement as we do in Stage I. The
analytical tools to augment this process. Moreover, we
those in which we have very high confidence that excess length of the second stage depends on the strength of
think analyzing valuation through discounted cash flows
returns will remain for 10 years, with excess returns more the company’s economic moat. We forecast this period to
presents a better lens for viewing cyclical companies,
likely than not to remain for at least 20 years. The longer last anywhere from one year (for companies with no eco-
high-growth firms, businesses with finite lives (e.g.,
a firm generates economic profits, the higher its intrinsic nomic moat) to 10–15 years or more (for wide-moat com-
mines), or companies expected to generate negative
value. We believe low-quality, no-moat companies will panies). During this period, cash flows are forecast using
earnings over the next few years. That said, we don’t dis-
see their normalized returns gravitate toward the firm’s four assumptions: an average growth rate for EBI over the
miss multiples altogether but rather use them as support-
cost of capital more quickly than companies with moats. period, a normalized investment rate, average return on
ing cross-checks for our DCF-based fair value estimates.
new invested capital (RONIC), and the number of years
We also acknowledge that DCF models offer their own
When considering a company's moat, we also assess until perpetuity, when excess returns cease. The invest-
challenges (including a potential proliferation of estim-
whether there is a substantial threat of value destruction, ment rate and return on new invested capital decline un-
ated inputs and the possibility that the method may miss
stemming from risks related to ESG, industry disruption, til a perpetuity value is calculated. In the case of firms
shortterm market-price movements), but we believe these
financial health, or other idiosyncratic issues. In this con- that do not earn their cost of capital, we assume marginal
negatives are mitigated by deep analysis and our
text, a risk is considered potentially value destructive if its ROICs rise to the firm’s cost of capital (usually attribut-
longterm approach.
occurrence would eliminate a firm’s economic profit on a able to less reinvestment), and we may truncate the
cumulative or midcycle basis. If we deem the probability second stage.
Morningstar’s equity research group (”we,” “our”) be-
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize
the company as possessing an economic moat. Stage III: Perpetuity
future cash flows it can generate. The Morningstar Rating
Once a company’s marginal ROIC hits its cost of capital,
for stocks identifies stocks trading at a discount or premi-
2. Estimated Fair Value we calculate a continuing value, using a standard per-
um to their intrinsic worth—or fair value estimate, in
Combining our analysts’ financial forecasts with the petuity formula. At perpetuity, we assume that any
Morningstar terminology. Five-star stocks sell for the
firm’s economic moat helps us assess how long returns growth or decline or investment in the business neither
biggest risk adjusted discount to their fair values, where-
on invested capital are likely to exceed the firm’s cost of creates nor destroys value and that any new investment
as 1-star stocks trade at premiums to their intrinsic worth.
capital. Returns of firms with a wide economic moat rat- provides a return in line with estimated WACC.
Four key components drive the Morningstar rating: (1) our ing are assumed to fade to the perpetuity period over a
longer period of time than the returns of narrow-moat Because a dollar earned today is worth more than a dollar
assessment of the firm’s economic moat, (2) our estimate
firms, and both will fade slower than no-moat firms, in- earned tomorrow, we discount our projections of cash
of the stock’s fair value, (3) our uncertainty around that
creasing our estimate of their intrinsic value. flows in stages I, II, and III to arrive at a total present
fair value estimate and (4) the current market price. This
value of expected future cash flows. Because we are
process ultimately culminates in our singlepoint star rat-
Our model is divided into three distinct stages: modeling free cash flow to the firm—representing cash
ing.
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
1. Economic Moat Stage I: Explicit Forecast
weighted average of the costs of equity, debt, and pre-
The concept of an economic moat plays a vital role not In this stage, which can last five to 10 years, analysts
ferred stock (and any other funding sources), using ex-
only in our qualitative assessment of a firm’s long-term make full financial statement forecasts, including items
pected future proportionate long-term, market-value
investment potential, but also in the actual calculation of such as revenue, profit margins, tax rates, changes in
weights.
our fair value estimates. An economic moat is a structural workingcapital accounts, and capital spending. Based on
feature that allows a firm to sustain excess profits over a these projections, we calculate earnings before interest,
3. Uncertainty Around That Fair Value Estimate
long period of time. We define economic profits as re- after taxes (EBI) and the net new investment (NNI) to de-
Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company ’s intrinsic
Morningstar Equity Research Star Rating Methodology
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
aimed at identifying the confidence we should have in as-
signing a fair value estimate for a given stock.
Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
ß
thing that can affect our ability to accurately predict Morningstar Equity Research Star Rating Methodology
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.
Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain
we are about the potential dispersion of outcomes, the
greater the discount we require relative to our estimate of
the value of the firm before we would recommend the
purchase of the shares. In addition, the Uncertainty Rat-
ing provides guidance in portfolio construction based on
risk tolerance. Once we determine the fair value estimate of a stock, we justed return is highly likely over a multiyear time frame.
compare it with the stock’s current market price on a Scenario analysis developed by our analysts indicates
Our Uncertainty Ratings are: Low, Medium, High, Very daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
High, and Extreme. lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
which the stock is listed is open. Our analysts keep close ing upside potential.
Margin of Safety
tabs on the companies they follow, and, based on thor-
Qualitative Analysis
QRating ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Uncertainty Ratings QQQQQRating
estimates as warranted. justed return is likely.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
High 40% Discount 55% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
Very High 50% Discount 75% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Extreme 75% Discount 300% Premium serve as a gauge of the broader market’s valuation. When
there are many 5-star stocks, the stock market as a whole QQ We believe investors are likely to receive a less than
Our uncertainty rating is based on the interquartile range, fair risk-adjusted return.
is more undervalued, in our opinion, than when very few
or the middle 50% of potential outcomes, covering the
companies garner our highest rating.
25th percentile–75th percentile. This means that when a Q Indicates a high probability of undesirable risk-adjus-
stock hits 5 stars, we expect there is a 75% chance that ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
the intrinsic value of that stock lies above the current time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
market price. Similarly, when a stock hits 1 star, we ex- our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
pect there is a 75% chance that the intrinsic value of that cessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
stock lies below the current market price. leaving the investor exposed to Capital loss.
prices may adjust).
4. Market Price Our star ratings are guideposts to a broad audience and Other Definitions
The market prices used in this analysis and noted in the individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
report come from exchange on which the stock is listed goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
which we believe is a reliable source. needs, and complete investment portfolio, among other
factors. Capital Allocation Rating: Our Capital Allocation (or
For more details about our methodology, please go to Stewardship) Rating represents our assessment of the
https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be- quality of management’s capital allocation, with particu-
low: lar emphasis on the firm ’s balance sheet, investments,
Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad- and shareholder distributions. Analysts consider compan-
ß
ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing mendations made herein may not be suitable for all in-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- vestors: recipients must exercise their own independent
Corporate governance factors are only considered if they aged ESG Risk score is below 50. judgment as to the suitability of such investments and re-
are likely to materially impact shareholder value, though commendations in the light of their own investment ob-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are jectives, experience, taxation status and financial posi-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, tion.
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute,
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- The information, data, analyses and opinions presented
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- herein are not warranted to be accurate, correct, com-
Standard rating is most common as most managers will tries covered. plete or timely. Unless otherwise provided in a separate
exhibit neither exceptionally strong nor poor capital alloc- agreement, neither Morningstar, Inc. or the Equity Re-
ation. The ESG Risk Rating Assessment is a visual representa- search Group represents that the report contents meet all
tion of Sustainalytics ESG Risk Categories on a 1 to 5 of the presentation and/or disclosure standards applic-
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low able in the jurisdiction the recipient is located.
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes,
cess. Beyond investment strategy, financial leverage, and Severe Risk = 1 Globe. For more information, please visit Except as otherwise required by law or provided for in a
dividend and share buyback policies, analysts also con- sustainalytics.com/esg-ratings/ separate agreement, the analyst, Morningstar, Inc. and
sidered execution, compensation, related party transac- the Equity Research Group and their officers, directors
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Morningstar Equity Analyst Report | Report as of 13 Nov 2023 19:37, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 22

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Price vs. Fair Value

Fair Value: 300.00

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Bulls Say Seth Goldstein, CFA, Strategist, 2 Nov 2023

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Fair Value Fair Value Fair Value

Last Close Last Close

Economic Moat Narrow Narrow Narrow Narrow

Bears Say Seth Goldstein, CFA, Strategist, 2 Nov 2023

Economic Moat Seth Goldstein, CFA, Strategist, 2 Nov 2023

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Risk and Uncertainty Seth Goldstein, CFA, Strategist, 2 Nov 2023

Capital Allocation Seth Goldstein, CFA, Strategist, 16 Oct 2023

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

We see management's investments as fair. We are in favor of management's investment strategy to

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Analyst Notes Archive

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Our narrow-moat rating is also unchanged.

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Competitors Price vs. Fair Value

55K Over Valued

Total Return % as of 13 Nov 2023. Last Close as of —. Fair Value as of —.

Lithium Americas (Argentina) Corp LAAC

Fair Value: 34.00

— — — 0.65 0.29 0.23 Price/Fair Value

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Livent Corp LTHM

Fair Value: 38.00

0.77 0.52 1.35 1.11 0.52 0.36 Price/Fair Value

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

Morningstar Historical Summary

Valuation as of 31 Oct 2023

Morningstar Analyst Historical/Forecast Summary as of 02 Nov 2023

Albemarle Corp ALB QQQQQ 10 Nov 2023 22:20, UTC

ESG Risk Rating Breakdown

Management Values u Management measures a company ’s ability to manage

Management Gap4 20.9 100 0 programs, practices, and policies

Overall Unmanaged Risk 26.8 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

Lithium Americas (Argentina) Corp LAAC 10 Nov 2023 22:48, UTC

Livent Corp LTHM 10 Nov 2023 22:20, UTC

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Research Methodology for Valuing Companies

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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