Why Albemarle Is Trading at a Discount Compared to FMC
Albemarle’s forward PE
In this part of the series, we’ll analyze analysts’ views and recommendations for Albemarle (ALB) and look at ALB’s valuations compared to its peer FMC (FMC). As of August 29, 2017, Albemarle’s one-year forward PE (price-to-earnings) multiple was 23.9x, while its peer FMC (FMC) was trading at a one-year-forward PE multiple of 24.4x.
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Forward PE considers future earnings while calculating valuations. This tool can be useful since it helps investors compare two or more companies operating in the same industry and see which company is overvalued and which one is undervalued.
Albemarle trades at a discount to FMC
Currently, ALB is trading at a discount to its peer FMC. With Albemarle beating analysts’ earnings expectations in the first half of 2017, analysts are now expecting ALB to post earnings per share of $4.37, projecting a rise of 22.3% on a year-over-year basis. For fiscal 2018, analysts are forecasting ALB to post earnings per share of $5.02, which implies a rise of 14.9% over fiscal 2017. Earnings are expected to be driven by a continued demand in its lithium business and better control over its operating expenses.
On the other hand, analysts see FMC’s fiscal 2017 earnings at $2.44 per share, a fall of 13.6% over the previous year. Analysts are forecasting FMC’s fiscal 2018 earnings per share to be $5.07, which is a 108.0% rise over fiscal 2017. Since FMC’s fiscal 2018 expected earnings growth is more than ALB, FMC commands a premium over Albemarle on its stock price.
Investors can indirectly hold Albemarle by investing in the Materials Select Sector SPDR ETF (XLB), which has invested 2.1% of its portfolio in Albemarle. The other holdings of the fund include Dow Chemical (DOW), Monsanto (MON), and Praxair (PX) with weights of 11.7%, 8.3%, and 6.1%, respectively, as of August 29, 2017.