Albemarle CorporationALBNYSE

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DCF Valuation

⚠️Model Warnings

•Terminal value represents 98% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Sell

Fair Value: $93.52 per share(market-calibrated)

-43.4%

Upside to Fair Value

Current

$165.38

Pure Model

$86.93

Fair Value

$93.52

Bull Case

$134.26

Bear Case

$50.58

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.43%

Calibrated Growth

3.29%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $86.93.

What's Driving This Ratingfor ALB

↓

CapEx normalizing toward maintenance

Historical CapEx is 25.82% of revenue (heavy investment phase). Model fades this to 4.00% by Year 10, freeing up ~$2.8B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 8.54% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.5B (11.54% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 12.24% revenue growth in Year 1, fading to 17.07% by Year 5 and 2.25% by Year 10. Revenue reaches $13.0B by Year 10 (vs $5.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $64.99/share (13.4x terminal FCF) while exit multiple gives $108.87/share (21.0x terminal FCF). The 14x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $165.38, the market implies 6.43% perpetual growth — 418bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 66.82% indicates efficient cash generation. FCF reaches $1.8B by Year 10 (13.51% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.45

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)11.02%

Cost of Debt

Pre-tax Cost of Debt4.09%

Tax Rate21.00%

After-tax Cost of Debt3.23%

Equity Weight (E/V)85.52%

Debt Weight (D/V)14.48%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (85.52% × 11.02%) + (14.48% × 3.23%)

= 9.89%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$5.8B	$6.2B	$8.8B	$11.1B	$13.0B
EBIT	$493M	$530M	$750M	$1.1B	$1.5B
Tax	$103M	$111M	$157M	$237M	$314M
NOPAT	$389M	$419M	$592M	$893M	$1.2B
+ Depreciation	$501M	$539M	$763M	$967M	$1.1B
- Capex	$1.5B	$1.3B	$1.4B	$1.3B	$519M
- Δ NWC	$82M	$19M	$166M	$145M	$37M
Free Cash Flow	-$682M	-$364M	-$228M	$459M	$1.8B
Discount Factor	0.910	0.754	0.624	0.517	0.389
Present Value	-$620M	-$274M	-$142M	$237M	$682M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.8B

Terminal Growth Rate2.25%

WACC9.89%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$23.4B

PV of Terminal Value$9.1B

Exit Multiple Method

Year 10 EBITDA$2.6B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$36.7B

PV of Terminal Value$14.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$203M

PV of Terminal Value$9.1B

Enterprise Value$9.3B

(-) Net Debt$1.7B

Equity Value$7.6B

Shares Outstanding118M

Price per Share$64.99

Exit Multiple Method

PV of Projected FCFs$203M

PV of Terminal Value$14.3B

Enterprise Value$14.5B

(-) Net Debt$1.7B

Equity Value$12.8B

Shares Outstanding118M

Price per Share$108.87

Pure Model Fair Value

$86.93

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.89%	$115.73	$120.33	$125.75	$132.22	$140.09
8.89%	$97.10	$100.27	$103.91	$108.15	$113.14
9.89%	$82.11	$84.37	$86.93	$89.85	$93.20
10.89%	$69.74	$71.40	$73.26	$75.35	$77.71
11.89%	$59.35	$60.60	$61.98	$63.52	$65.23

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$50.58

-69.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.81

Base Case

$86.93

-47.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.45

Bull Case

$134.26

-18.8% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.23

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Basic Materials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth12.24%

Year 3 Revenue Growth2.47%

Year 5 Revenue Growth17.07%

Year 7 Revenue Growth11.14%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin8.54%

Terminal EBIT Margin13.00%

Tax Rate21.00%

Historical Capex / Rev25.82%

Terminal Capex / Rev4.00%

NWC / Revenue12.96%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 14x EV/EBITDA (Basic Materials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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