MP Materials Corp.

MP Details

MP Materials Corp (NYSE: MP) is the leading producer of the rare earth materials in the Western Hemisphere. 

Financial Results for Fourth Quarter and Full Year Ended December 31, 2021

• In FY 2021, the company produced 42,413 metric tons of rare earth oxides in concentrate, which is the highest rare earth production in the U.S. and Mountain Pass history.
• The company managed to sell 42,158 metric tons of REO, which helped it in generating record revenue of $332.0 Mn, reflecting a rise of 147% YoY.
• It produced net income of $135.0 Mn and adjusted EBITDA of $219.1 Mn.
• In Q4 FY 2021, it rose production by 10% YoY to 10,261 metric tons of REO.

Source: Analysis by Kalkine Group

Recent Updates

Recently, MP Materials and General Motors simultaneously announced the definitive supply agreement which is expected to commence in late 2023 to produce rare earth alloy as well as magnets for GM’s EV programs.

MP recently announced the financial results for the 3 months ended March 31, 2022. It posted record quarterly revenue, net income as well as adjusted EBITDA. Its revenue rose 177% YoY to $166.3 Mn and its net income increased 431% YoY to $85.6 Mn. The revenue growth was driven by the increases in the realized price of REO in concentrate and metric tons of REO sold.

Outlook

The company’s strategy revolves around leveraging the low-cost position in order to maximize the earnings power in all the commodity price environments. The company’s Fort Worth facility would be having the capacity to produce ~1,000 tonnes of neodymium-iron-boron (or NdFeB) magnets per year. This could support the production of ~500,000 EV traction motors. Apart from the EVs, NdFeB magnets are crucial inputs to robots, wind turbines, drones, defense systems as well as several other high-growth technologies.

Key Risks

The COVID-19 pandemic could severely impact the company’s business and MP is operating in the highly competitive industry. Notably, industry consolidation could lead to higher competition, which could impact its revenue.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

 Stock Recommendation

The stock has been valued using EV/Sales multiple based illustrative relative valuation method and the target price so arrived reflects a rise of low double-digit (in percentage terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average) (approx) considering the decent outlook as well as focused strategy.

 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

 

Considering the aforesaid factors, we give a “Buy” recommendation on the stock at the current market price of US$35.91 per share, as on 9.52 am New York Time, USA (GMT-4) as of 25 May 2022.

 

MP Materials Corp (MP) is a part of Kalkine’s Global Fully Charged Product

 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.