Livent Earnings: Shares Rally on Management Guidance for Higher Lithium Contract Prices

We raise our Livent LTHM fair value estimate to $38 per share from $37 to reflect our outlook for higher near-term lithium contract prices. Our narrow moat rating is unchanged.

Livent shares were up 9% in after-hours trading as the market reacted favorably to management’s increased guidance for higher realized lithium prices in 2023. At current prices, we continue to view Livent shares as significantly undervalued with the stock trading in 4-star territory. The current stock price implies lower lithium prices for longer due to falling spot, which are down a little over 50% from the start of the year. However, we point to a temporary slowdown in demand as the driver of falling prices and forecast strong demand will ultimately keep lithium undersupplied for the remainder of the decade, leading to higher prices.

Livent has taken a longer-term contract price strategy. As such, the majority of its sales volumes in 2023 were made at fixed prices, which effectively insulates most of the company’s sales volumes from fluctuating spot and index prices. While Livent will sell some volumes at market prices, the company does not plan to sell any lithium into the spot market during the first half of the year, which should help Livent realize higher prices. While this insulates Livent from price volatility, it also limited upside for the company last year when prices were rising.

Regardless, management plans to shift to a contract structure where volumes are set with shorter-term price resets. We view this as a good move for Livent and all lithium producers as we doubt any lithium producer can achieve higher average prices through long-term fixed-price contracts than market-based pricing.