USA Rare Earth Stock is Soaring in 2026, Is it Still a Buy?
Key Points
USA Rare Earth secured a major government collaboration, boosting its stock and funding.
Production and financial targets for 2030 have been upgraded, but risks remain.
- 10 stocks we like better than USA Rare Earth ›
USA Rare Earth (NASDAQ: USAR) stock is up an incredible 83% year to date, rising 88.4% in January, according to data from S&P Global Market Intelligence. There's no doubt about the reason; the company finally secured the collaboration agreement with the U.S. Government that the market had speculated about ever since its peer, MP Materials, got its deal last July.
USA Rare Earth's growth plans
The agreement was announced in late January and has pros and cons for investors. On the one hand, the issue of shares and warrants to the government and private investors diluted existing shareholders' interests and introduced an element of political risk inherent in a public-private collaboration.
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On the other hand, the raising of $3.1 billion in funding ($1.3 billion in a senior secured loan, and $277 million from the sale of equity to the government, and $1.6 billion in private investment in equity) significantly derisks the company's business plan, and caused management to raise its medium term operational expectations as well as outline financial targets for 2030.
As a reminder, USA Rare Earth plans to begin commercial production of rare earth magnets at its Stillwater, Oklahoma, facility this year, and then start commercial production in the Round Top mining deposit in Texas in 2028, after which it can supply Stillwater with rare earth materials from Round Top.
Image source: Getty Images.
Derisking USA Rare Earth's plans
The influx of funds enables the company to finance its mining, processing, metal-making, and ultimately magnet production aims, and management wasted no time in outlining how the agreement changed its operational expectations for 2030.
As you can see below, the agreement is a game changer, as securing financing ensures commercial development and dramatically increases the company's plans to produce rare earth magnets by 2030.
|
USA Rare Earth Capacity in 2030 |
Before Agreement |
After Agreement |
|---|---|---|
|
Mining and Processing |
Contingent on capital raise |
8,000 tpa |
|
Metal Making |
2,000 tpa |
27,500 tpa |
|
Magnet Making |
4,800 tpa |
10,000 tpa |
Data source: USA Rare Earth presentations. tpa=tonnes per annum.
The increase in production plans means management can provide financial projections for 2030: revenue of $2.6 billion, earnings before interest, taxation, depreciation, and amortization (EBITDA) of $1.2 billion, and $900 million in free cash flow (FCF).
Based on the current market cap of $4.74 billion, these figures would put the stock on 5.3 times FCF in 2030, an extremely attractive valuation.
Image source: Getty Images.
Is USA Rare Earth stock a buy?
The financial projections make the stock attractive, but there's plenty of risk ahead before the company gets near these figures. Management needs to operationalize Stillwater, develop Round Top commercially, and avoid the pitfalls of political involvement. Still, the company is helping the U.S. secure a domestic supply of critical rare earth materials and magnets. While that remains a priority, the company is likely to support it.
Should you buy stock in USA Rare Earth right now?
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.
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