For the second day running, shares of MP Materials (MP 2.54%), a miner of rare earth elements and the company that was once-upon-a-time known as Molycorp, are marching higher. Shares are up 9.9% as of 2 p.m. EST. The reason has to do with Morgan Stanley.
Yesterday, MP stock got its boost from Reuters, which ran a story highlighting how prices of rare earth elements (also known as rare earth metals) are shooting higher on strong demand for their use in manufacturing electric vehicles. Well apparently, Morgan Stanley reads Reuters, too, because this morning the investment banker announced it is initiating coverage of MP Materials stock with an overweight rating and a $57 price target that implies there's about 12% upside in the stock.
"MP is the largest US-based miner of rare earths," explains Morgan Stanley in today's note, covered on StreetInsider.com. In particular, it's a producer of neodymium and praseodymium, both elements key to the manufacture of the magnets that power the electric motors on EVs. MP is in fact "a play on accelerating adoption of electric vehicles and electrification trends in wind turbines," as well. So it's a play not just on electric cars -- but the renewable energy to run them, too!
And MP Materials is more than just a "story stock," Morgan Stanley assures us. It is also a company with a "strong balance sheet and positive cash from operations."
That being said, I'm afraid I'm going to have to take issue with Morgan Stanley on those more substantive points about MP.
For example: "Strong balance sheet?" In fact, MP has just $30 million in cash on its balance sheet and $54 million in long-term debt. That's not a lot of net debt for a company valued at $7.2 billion, but there's simply not a lot of cash here, and so I wouldn't call the balance sheet "strong," exactly.
"Positive cash from operations?" Sure, MP has got that. But according to data from S&P Global Market Intelligence, its cash from operations is $1.7 million. That's not a lot, and it's quickly eaten up by capital spending of $9.6 million (and growing) over the past year, with the result that MP has negative free cash flow, as well as negative net income of nearly $45 million over the past year.
Morgan Stanley is of course entitled to its opinion, and it may like these numbers -- but I remain to be convinced.