Shares of lithium producer Livent Corp (NYSE:LTHM) gained more than 30% after hosting a bullish second-quarter conference call, but one analyst is skeptical on the company's outlook.
The Analyst
Bank of America Merrill Lynch's Steve Byrne downgraded Livent from Neutral to Underperform with a price target lowered from $10 to $7.
The Thesis
Livent issued an in-line second-quarter report Aug. 6, but during the conference call, the company discussed an acceleration in lithium hydroxide orders, Byrne said in a Monday downgrade note. (See his track record here.)
Bulls have been waiting for signs of an inflection point, but firsthand checks and research suggest the market for electric vehicles won't grow enough to absorb the company's new capacity over the next six to 12 months, the analyst said.
Livent guided to a 2019 lithium hydroxide market size of 100-110kmt, more than triple the 30kmt market seen in 2018, he said.
A more appropriate estimate for the size of the market in 2019 is 45-70kmt, Byrne said, adding that the industry could struggle to absorb another 50-60kmt of new supply coming online in 2020.
No rationale exists for turning bullish on Livent's 2019 outlook, and there is some reason to turn bearish on the 2020 story, Byrne said.
Livent could be impacted by further decrements in realized lithium hydroxide price in a "creeping commoditization" market, according to BofA.
Price Action
Livent shares were down 11.81% at $6.68 at the time of publication Monday.
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