Government Contracts And Apple Partnership Will Drive Processing Expansion

Key Takeaways

• Government-backed contracts and partnerships with major tech firms secure stable revenue and improve long-term earnings visibility, insulating against market fluctuations.
  
• Expansion into value-added manufacturing and recycling, supported by national policies and funding, positions MP for margin growth and enhanced operational leverage.
  
• Expansion, customer concentration, regulatory pressures, and contract restrictions heighten operational, revenue, and technology risks, threatening earnings growth and long-term strategic flexibility.

Catalysts

Produces rare earth materials in the Western Hemisphere.

• MP Materials' recently secured long-term, government-backed offtake agreements-including a minimum price floor and guaranteed EBITDA for magnet output from the Department of Defense-as well as a $500M+ multi-year supply contract with Apple, ensure predictable and resilient revenue streams insulated from price volatility, directly enhancing future revenue and earnings visibility.
  
• The company is expanding its vertically integrated processing and magnet manufacturing capacity with the "10X" plant and a modular recycling facility, which, together with significant CapEx support from Apple and the DoD, will capture more value-added margins and potentially improve net profit and operating leverage as they ramp downstream operations.
  
• Structural global shifts prioritizing domestic and allied supply chains for critical materials-underpinned by national security and electrification policies-have resulted in massive government funding, ownership stakes, and market protections for MP, setting up long-term demand and premium pricing for U.S.-produced rare earths and supporting sustained margin expansion.
  
• Strong execution at the Mountain Pass facility, including record production recoveries, higher concentrate grades, and productivity improvements, point to continued per-unit cost reduction and scale economies, which should further increase net margins as production and sales volumes rise over the coming years.
  
• Rapid growth in demand from EVs, renewable energy, automation, and advanced electronics, alongside the ability to flexibly process a diverse range of feedstocks (including recycled and heavy-rich inputs), positions MP for diversified end-market growth and reduces cyclicality in future revenue and earnings.

MP Materials Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MP Materials's revenue will grow by 61.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -41.9% today to 23.2% in 3 years time.
• Analysts expect earnings to reach $236.3 million (and earnings per share of $1.23) by about September 2028, up from $-101.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $281.5 million in earnings, and the most bearish expecting $134.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 87.3x on those 2028 earnings, up from -115.3x today. This future PE is greater than the current PE for the US Metals and Mining industry at 22.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.44%, as per the Simply Wall St company report.

MP Materials Future Earnings Per Share Growth

Risks

• MP Materials' ambitious expansion into downstream processing and rapid build-out of new facilities (such as the 10X magnetics plant and expanded heavy rare earth separation) carries significant execution risk-delays, operational challenges, or cost overruns during this scale-up could erode net margins and impede earnings growth.
  
• The company's planned recycling capacity and the partnership with Apple may expose it to long-term technological risk if rare earth recycling becomes highly efficient, or if material science advances lead to the reduced need for newly mined rare earths, undermining future revenue from primary production.
  
• Heavy revenue dependence on a small number of large, strategic customers (such as DoD, Apple, and GM) introduces concentration risk; contract renegotiations, policy shifts, or order delays from any of these anchor customers could lead to revenue volatility and impact earnings visibility.
  
• Although the DoD agreement guarantees a price floor and minimum EBITDA, it may reduce MP Materials' exposure to global upside price swings in rare earths, while also limiting the company's flexibility to pursue new external markets (notably, they are contractually restricted from sales to China and hostile states), possibly capping long-term revenue growth.
  
• The intense global focus on decarbonization, ESG, and supply chain transparency may drive stricter environmental regulation or higher compliance costs in rare earth mining and processing; failure to meet these standards at the Mountain Pass facility could result in fines, forced shutdowns, expensive remediation, and reputational damage, ultimately compressing net margins.

Valuation

• The analysts have a consensus price target of $77.0 for MP Materials based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $85.0, and the most bearish reporting a price target of just $65.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $236.3 million, and it would be trading on a PE ratio of 87.3x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $65.99, the analyst price target of $77.0 is 14.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.