USA Rare Earth Stock Jumps. Why This Analyst Says Buy Now.

A rare earth magnet being inspected. Shares of rare earth miner and processor USA Rare Earth got a new Buy rating on Monday. (Courtesy MP Materials)

Key Points

• William Blair initiated coverage of USA Rare Earth with a Buy rating, citing potential for U.S. government investment in the sector.
• USA Rare Earth’s stock increased by approximately 142% year-to-date, with shares trading at $29.26 in premarket activity.
• All five analysts covering USA Rare Earth rate its shares as Buy, with recent price targets around $30 per share.

William Blair analyst Neal Dingmann launched coverage of USA Rare Earth on Monday with the equivalent of a Buy rating, believing the U.S. government isn’t done investing in domestic rare earth companies. He doesn’t have a price target for shares. A Buy at William Blair essentially means they expect the stock to outperform the market.

USA Rare Earth stock was up 8.9% at $30.19 in premarket trading at $29.26, while S&P 500 and Dow Jones Industrial Average futures were up 0.3% and 0.2%, respectively.

“USA Rare Earth is one of few fully integrated rare earth companies,” wrote Dingmann. “It features a research facility developing proprietary rare earth extraction and purification technology, a magnet manufacturing facility, and majority ownership of the Round Top mine in Texas. Its magnet facility will soon begin production, supported by its acquisition of Less Common Metals (LCM), providing metal-making and strip-casting operations, and we expect the combination of these factors to generate long-term shareholder return.”

USA Rare Earth doesn’t generate significant sales yet. Its projects are under development. That hasn’t stopped investor interest, though. Coming into Monday trading, USA Rare Earth stock was up about 142% so far this year.

Interest in rare earths rose after China, which dominates production and processing of them, threatened export controls on the materials, which put U.S. manufacturing at risk. Rare earth materials end up in everything from an EV to a wind turbine to a fighter jet. Shares of MP Materials , the largest rare earth producer in the Western Hemisphere, were up more than 400% so far this year, entering Monday trading.

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The overreliance on China helped lead the Defense Department to do a blockbuster deal with MP in July that included an equity stake, a price floor for rare earth products, and a guaranteed customer for any magnets produced from planned capacity. The agreement transformed the domestic rare earth industry overnight.

“Hot take. The U.S. government may announce [a] sizable investment in the company,” added Dingmann in his report.

If he’s right, it would give shares another boost.

Overall, five analysts cover USA Rare Earth now, according to FactSet. All five rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

The average analyst price target for USA Rare Earth stock is about $24. That’s below where shares are trading, but Wall Street has had trouble keeping up with gains. The more recent price targets for USA Rare Earth stock are closer to $30 a share.

Write to Al Root at allen.root@dowjones.com