MP Materials Corp. has recently made headlines as BMO Capital upgraded its stock rating from Market Perform to Outperform. Despite this positive shift, the firm adjusted its price target downwards from $76 to $75. This decision comes during a time of significant volatility in the stock, as evidenced by a 22% drop over the past month. However, the stock showed resilience, rising 2.5% in premarket trading to reach $56.65.
The context surrounding MP Materials is crucial, especially considering the ongoing U.S.-China trade tensions. Earlier in October, MP”s shares surged above $100 due to fears of potential restrictions on rare-earth exports from China. Yet, as negotiations between the two countries showed signs of improvement, the stock”s value plummeted. Despite recent fluctuations, it is noteworthy that shares have appreciated over 250% year-to-date.
Analyst Raj Ray at BMO Capital highlighted the vulnerability of the U.S. in terms of rare-earth supplies, indicating that this issue has become increasingly evident. With China controlling approximately 85% of the global rare-earth processing capacity, the implications for U.S. supply chains are pronounced.
Although the recent decline in rare-earth prices can be linked to China”s removal of export restrictions, BMO Capital maintains that the long-term investment case for MP Materials remains strong. The company operates the largest rare-earth production facility in the Western Hemisphere, located at Mountain Pass in California. Rare-earth materials are integral to a wide array of products, ranging from consumer electronics to advanced military equipment.
In July, the U.S. Defense Department reached a significant agreement with MP Materials aimed at bolstering domestic production of rare-earth products. This collaboration includes an equity stake and guarantees for materials, underpinning the strategic importance of these resources.
Wall Street sentiment about MP Materials is largely optimistic. Reports indicate that around 88% of analysts covering the stock have rated it as a Buy, significantly higher than the average Buy-rating ratio of 55% for S&P 500 stocks. The average price target among analysts stands at $79, suggesting a potential upside of over 40% from the stock”s recent closing price.
Additionally, BMO noted MP”s joint venture with the Saudi Arabian Mining Company, in collaboration with the U.S. Department of War, which aims to establish a rare-earth refinery. Goldman Sachs has also initiated coverage on MP with a Buy rating, while DA Davidson and JPMorgan have maintained their positive outlook, citing national security concerns surrounding rare earths.
BMO Capital believes that the strategically significant assets of MP Materials will continue to justify a premium valuation compared to its peers, viewing the current price as an attractive entry point for investors following recent market fluctuations.
