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Lithium And Fertilizer Play Breaks Out On Huge Earnings

SQM (SQM) easily beat Q4 earnings estimates late Wednesday, powered by higher lithium and fertilizer prices. SQM stock cleared a buy point in Thursday’s stock market action.




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Meanwhile, the whole fertilizer group, including Mosaic (MOS), International Potash (IPI), Nutrien (NTR) and CF Industries[ticker symb=CF], continued to soar on Thursday as the Russia-Ukraine conflict threatens to snag a key source of global supplies.

SQM said a doubling of EV sales in 2021 fueled a 55% rise in global lithium demand, and the company expects more than 30% growth in 2022. “We do not believe that supply will be sufficient to meet this growth, ultimately putting pressure on market prices, reaching levels never seen before,” CEO Ricardo Ramos said in the earnings statement.

Meanwhile, potassium-based fertilizer prices surged 56% from Q3 and 153% from a year ago, and SQM predicted continued short-term strength amid strong pricing in Europe.

“We don’t see the global fertilizer shortage situation abating anytime soon,” CFRA analyst Arun Sundaram wrote in a Friday note. The Ukraine invasion has only exacerbated supply risk and market tightness amid export restrictions imposed by Russia and China, he said.

SQM stock hadn’t been keeping pace with leaders in the fertilizer group, at least before the Q4 report. That may be partly due to its diversification. Lithium accounted for 42% of revenue in Q4. Lithium stocks were hit after a disappointing outlook from Albemarle (ALB). Plus, SQM faces some country risk under president-elect Gabriel Boric. Chile already imposes 40% royalty rates on high lithium prices. Longer-term, SQM faces some uncertainty with a need to renew its lease agreement in 2030.

SQM Earnings

SQM earnings surged 352% to $1.13 per share, sailing past estimates of 92 cents, according to FactSet. Revenue growth of 111% to $1.084 billion easily cleared estimates of $979 million.

Sales of lithium and lithium derivatives rocketed 231% to $452.7 million, as price increases added to a 57% rise in sales volumes to 101,000 metric tons.

SQM said it expects to reach 140,000 metric tons in 2022, while expanding annual capacity to 180,000 tons before year-end. The company also boosted planned capital spending by $250 million to help enable the additional capacity expansion of 30,000 tons in 2023. With an additional 50,000 tons coming online via an Australian joint venture in 2024, volume could reach 260,000 tons in 2024.

Beyond that, the Australian venture could double output. SQM said it’s also prepared to look for acquisition targets to keep growing in the back half of the decade.

SQM Stock

SQM stock jumped 11.5% to 73.44 in strong volume, clearing a 67.60 buy point from a cup-with-handle base, according to MarketSmith. Shares hit a record 74.31 intraday.

Be sure to read The Big Picture to stay on top of the prevailing market trend and what it means for your trading decisions.

SQM’s relative strength line, the blue line in the chart provided that tracks its progress vs. the S&P 500, is hitting a multiyear high, confirming its market leadership.

Albemarle stock fell 2.5%, near its post-earnings lows. MOS stock rose 3.5% while Nutrien climbed 1.9% and CF Industries 2.85%.

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