Lithium prices have been red hot, sparking big rallies in Albemarle Corporation (NYSE: ALB) and Livent Corp (NYSE: LTHM) in the past year.

Prices have started to stabilize as of late and one analyst said Monday the longer-term outlook for the lithium market makes it difficult to justify the valuations of these two lithium producers.

The Analyst: On Monday, Bank of America analyst Matthew DeYoe reiterated his Underperform rating for Albemarle and raised his price target from $140 to $208. He also reiterated an Underperform rating for Livent and raised his price target from $18 to $19.

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The Thesis: Despite the target hikes, DeYoe said both lithium stocks are priced for perfection even though a large uptick in global supply is coming at some point to alleviate the current undersupplied market. For now, he sees “significant hype” in lithium stock valuations and said the two companies will likely be unable to deliver on the market’s high long-term growth expectations.

“We find equity values bake in substantial premiums to what companies can achieve based on their footprints and market growth,” DeYoe said.

Lithium carbonate prices have already started to level off after social distancing drove work-from-home demand for battery-powered devices such as laptops and power tools in 2020.

DeYoe said Spodumene production is still below 2019 levels even though demand is higher. The period of lower prices in 2019 and early 2020 drove multiple bankruptcies in the market that resulted in lower production capacity.

Looking ahead, DeYoe said he expects lithium supply to remain tight, but investors can expect 2022 production to roughly double 2021 production.

Benzinga’s Take: As with electric vehicle stocks, investors fully understand the huge long-term potential for future lithium demand. But even if there is a massive long-term demand coming for lithium in future decades, much of that demand may already be priced into Albemarle and Livent’s stocks given their steep valuations.

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