Root, Al. Barron's (Online); New York (Sep 20, 2021).
Batteries are a big deal—and a difficult area for people to find places to invest.
Storage cells are powering cars and being added to renewable generation sources such as wind and solar, making that green energy more reliable . The problem for U.S. investors is that most of the large battery makers are located, and trade, in Northeast Asia.
Battery recycling , however, is one U.S. business set to expand that investors can buy into. Wedbush analyst Dan Ives sees an opportunity in the battery recycler Li-Cycle Holdings (ticker: LICY). He launched coverage of the company Monday with a Buy rating on its stock and a target of $14 for the price.
In early afternoon, the stock was up 10% at $9.68, a tremendous performance on a bad day for markets.
The Chinese real estate developer China Evergrande (3333. Hong Kong) is the reason for the market's weak day. It is running into trouble handling its debt, stoking fear of a credit crisis there. The Shanghai stock market was closed on Monday, but Hong Kong's Hang Seng Index fell 3.3%. The S&P 500 and Dow Jones Industrial Average were off about 2.1% and 2%, respectively, in midday trading.
Li-Cycle completed a merger with a special-purpose acquisition company in August, raising money and becoming a publicly traded company in the process.
The company does what its name suggests, recycling components for rechargeable batteries. It is the largest North American participant in the industry, Ives wrote. "The mission of Li-Cycle boils down to two simple goals: creating a circular flow of raw materials in the lithium-ion battery industry and ensuring that the world can confidently transition to a broader sustainable future," he said.
Annual sales of new lithium-ion batteries are about $40 billion a year, and growing rapidly. Those sales will, eventually, turn into recycling opportunities as older EVs are scrapped and their batteries are salvaged.
Ives projected about $11 million in 2021 sales for Li-Cycle—a figure he sees growing to about $930 million by 2025. By then, he said, earnings before interest, taxes, depreciation and amortization should rise to more than $500 million.
Li-Cycle stock is valued at about $1.5 billion, while the company has roughly $500 million on its balance sheet, postmerger. The stock looks attractive if all the growth materializes.
Five analysts now cover the company. Four, or 80%, rate shares Buy. The average Buy-rating ratio for small-capitalization stocks is about 60%. The average price target among analysts is $13.60, still far above recent levels.
Another battery recycler is Redwood Materials founded by Tesla (TSLA) co-founder J.B. Straubel. Redwood, however, isn't publicly traded yet.
Write to Al Root at firstname.lastname@example.org
EV Batteries Are Taking Off. Play the Wave With This Lithium Recycling Stock.
Credit: Al Root