Investing.com -- Investing.com - Citi upgraded Albemarle (NYSE: ALB) shares to Buy from High Risk on Thursday, pointing to underappreciated growth opportunities in the lithium market despite recent spot price weakness. The bank kept its $225 price target on the stock.

The Wall Street firm updated its estimates ahead of the company’s second-quarter fiscal 2026 earnings to reflect current lithium market pricing and its own lithium forecast.

“While supply risk on the potential of re-starts in Western Australia or Jianxiawo has weighed on spot & equity prices, we are skeptical that the market will flip to a meaningful glut given current demand tailwinds,” Citi analysts wrote.

“Even in a balanced market, we see ALB as one of the primary beneficiaries of structural lithium demand tailwinds given its high-quality assets, conversion network, and potential to allocate a steady capital program to high-return growth projects,” they added.

Albemarle’s recent share price weakness stems from a pullback in spot prices since mid-May, which Citi expects to be largely transitory given robust battery production and new energy vehicle battery demand.

The bank projects battery energy storage system output to grow approximately 35% year-over-year to 950 gigawatt-hours this year and another 37% to around 1,300 gigawatt-hours in 2027, driven by renewable energy mandates and rising data center investments.

It highlighted that first-quarter fiscal 2026 battery margins remained stable despite higher lithium costs, with further improved profitability expected across the supply chain in fiscal 2026.

Citi’s commodities team expects lithium prices to continue rising with zero-to-three-month price targets of carbonate at approximately $40,000 per ton and hydroxide at approximately $32,000 per ton, driven by strong battery demand and a projected 2026 deficit of approximately 4%.

The team raised 2027 and 2028 price forecasts due to a higher structural floor from electric vehicle adoption, energy storage system growth, and electrification trends.

Albemarle’s net leverage stood at approximately 1x at the end of the first quarter of fiscal 2026, with strong fiscal 2026 free cash flow generation nearing approximately 70% conversion.

Citi estimates potential Wodgina expansion could add approximately 13,000 tons of lithium carbonate equivalent, while CGP4 could add another 35,000 to 40,000 tons.