Rising Secular Trends Will Accelerate Rare Earth Market Dominance

Key Takeaways

• Structural advantages from government backing, vertical integration, and strategic partnerships could drive significant margin expansion and establish MP as a global cost leader.
  
• Long-term demand growth, pre-sold capacity, and strong customer contracts position MP to capture outsized market share and benefit from premium pricing.
  
• Expansion risks, changing technology, customer concentration, regulatory pressure, and increased global supply all threaten future revenue stability and margin growth.

Catalysts

Produces rare earth materials in the Western Hemisphere.

• While analyst consensus views the price floor on NdPr established with the Department of Defense as providing earnings stability, the reality is that the price floor and upside-share mechanism could result in extraordinary, multi-year margin expansion as global shortages intensify and market prices surge well above $110 per kilogram, with MP capturing both secure baseline revenues and outsized windfall gains; this could drive structurally higher earnings than consensus currently models.
  
• Analysists broadly agree that the expansion into magnetics and guaranteed minimum EBITDA from the DoD unlock higher future earnings, but they may be dramatically underestimating the potential: not only are both the Independence and 10X facilities already 100% pre-sold for years, but commercial syndication could occur at significant price premiums in a supply-constrained market, leading to step-change revenue and margin accretion as these operations scale.
  
• MP's newly established long-term partnership with Apple jumpstarts industrial-scale rare earth recycling years ahead of competitors, creating an ultra-low-cost, sustainable feedstock that-combined with vertical integration-may make MP the global cost leader, supporting margin expansion and allowing the company to tap into premium ESG customer segments for higher pricing.
  
• With the only fully vertically integrated rare earth processing and magnet manufacturing platform outside China, and designation as America's "national champion," MP is positioned to receive ongoing regulatory support, further government incentives, and access to non-dilutive capital well into the next decade, which will significantly reduce cost of capital and boost long-term cash flows.
  
• The accelerating global megatrends of electric vehicle adoption, renewable energy buildout, and supply chain localization create a multi-decade "demand supercycle" for rare earth magnets; with MP's scale, contracted customer base, and flexible production platform, the company is primed to capture disproportionate market share, supporting high rates of revenue and earnings growth for years to come.

MP Materials Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on MP Materials compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming MP Materials's revenue will grow by 76.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -41.9% today to 27.9% in 3 years time.
• The bullish analysts expect earnings to reach $372.7 million (and earnings per share of $2.11) by about August 2028, up from $-101.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 61.1x on those 2028 earnings, up from -118.6x today. This future PE is greater than the current PE for the US Metals and Mining industry at 23.3x.
• 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 7.45%, as per the Simply Wall St company report.

MP Materials Future Earnings Per Share Growth

Risks

• Ongoing execution risks associated with scaling up new facilities, such as the 10X magnet plant and expanding recycling and heavy rare earth separation, could result in significant cost overruns or operational delays, negatively affecting future earnings and margin stability.
  
• Accelerating technological innovation in the automotive and electronics sectors could lead to reduced reliance on rare earth permanent magnets, shrinking MP Materials' addressable market and thereby pressuring long-term revenue growth and profitability.
  
• The company's persistent revenue concentration, with long-term supply contracts and reliance on key customers like Apple, General Motors, and the Department of Defense, creates exposure to contract renegotiations or abrupt changes in customer demand, which could increase revenue volatility.
  
• Heightened ESG and regulatory scrutiny as well as potential new global mining regulations may drive up compliance costs, capex requirements, or lead to project delays, thereby eroding net margins and threatening the timely execution of MP's strategic growth initiatives.
  
• As new rare earth supply capacity comes online globally and existing supply chains become more interconnected, the risk of global overcapacity, price wars, and declining rare earth prices rises, ultimately pressuring MP Materials' top line and long-term margin potential.

Valuation

• The assumed bullish price target for MP Materials is $85.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of MP Materials's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 $30.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $372.7 million, and it would be trading on a PE ratio of 61.1x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $67.88, the bullish analyst price target of $85.0 is 20.1% 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.