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MP Materials (NYSE:MP) -4.5% in Wednesday’s trading as Morgan Stanley downgrades the producer of rare earth minerals to Equal Weight from Overweight with a $15.50 price target, citing a soft near-term outlook for rare earth elements neodymium and praseodymium.
MP Materials (MP) is delivering solid operational results with the successful ramp of Mountain Pass stage 1 and initial oxide production for the company’s stage 2 investments, according to Morgan Stanley’s Carlos De Alba says, adding the company boasts a strong balance sheet to support the downstream transition, and free cash flow generation should accelerate after 2024.
But “soft NdPr prices in a slightly oversupplied market until 2026 and operational volatility with the downstream transition will limit the stock’s outperformance in the near term,” the analyst says, although the level of oversupply in the market is only 3%-4% of overall demand, and the market is expected to become tighter before reaching a slight deficit in 2026.
“While we remain constructive on MP’s ability to deliver on its downstream investments, the company will have elevated capex over the next 12-18 months, amidst a low-price environment, that will weigh on FCF generation,” and as the company transitions its business downstream, “the investment case will be muddied by delayed revenue recognition and an extended sales cycle which could weigh on results in the interim,” DeAlba writes.