NEW YORK (TheStreet) -- Molycorp (MCP) was plummeting Tuesday as the rare earth miner said it expects to report negative-cash flow and lower-than-expected revenue for the three-month period ended September 30. Molycorp said it plans to raise additional funds to cover working capital and debt in a secondary stock offering worth $200 to $230 million, its second round of financing since the beginning of 2013.
The disappointing earnings revision is due to lower production, demand and pricing, coupled with higher production costs. In a SEC form filed Tuesday, the company wrote, "This trend will continue unless market conditions improve."
To the fourth quarter, Molycorp said, "We are optimistic that operating cash flow before debt service will improve but expect that cash flow after debt service will continue to be negative."
Molycorp shares were tumbling 17% to $5.89 as of 10:40 a.m. New York time, after closing Monday at $7.10. Molycorp is scheduled to report third-quarter earnings on November 4.TheStreet Ratings team rates Molycorp INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation: "We rate Molycorp INC (MCP) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself, deteriorating net income and generally high debt management risk." Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, Molycorp's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for Molycorp INC is currently extremely low, coming in at 0.05%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -52% is significantly below that of the industry average.
- The debt-to-equity ratio of 1.00 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, MCP has managed to keep a strong quick ratio of 1.85, which demonstrates the ability to cover short-term cash needs.
- MCP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 33.65%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The change in net income from the same quarter one year ago has exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has decreased by 5.3% when compared to the same quarter one year ago, dropping from -$67.6 million to -$71.18 million.
- You can view the full analysis from the report here: MCP Ratings Report
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.