NEW YORK (TheStreet) -- Molycorp Inc. (MCP) stock is continuing to rally, up by 8.43% to $1.03 in mid-morning trading on Thursday, following Wednesday's announcement that the rare earth oxide producer will supply Siemens AG (SIEGY) with rare earth materials to use in Siemens' wind turbine generators for the next 10-years.
Terms of the deal were not disclosed.
Molycorp will supply rare earth materials to Shin-Etsu Chemical Co. Ltd. which will produce the rare earth magnets Siemens plans to use in its wind turbines.
"Siemens officials noted that key factors in choosing Molycorp were Molycorp's ability to provide greater global diversification and reliability to its supply chain, as well as the environmental and process innovations Molycorp has built into its Mountain Pass rare earth facility. Among those innovations are the facility's ability to recycle water, regenerate the chemical reagents needed in rare earth production, generate power from a high-efficiency natural gas cogeneration power plant, and dispose of mine tailings through an innovative paste tailings system," the announcement said.
While the deal sent shares soaring, JPMorgan (JPM) - Get JPMorgan Chase & Co. (JPM) Report believes the rally in Molycorp's stock was "way overdone," theflyonthewall.com reports, adding that the firm thinks Siemens is probably sourcing rare earth materials from a variety of suppliers and that Molycorp will still need to undergo a costly restructuring over the next year.
JPMorgan has an "underweight" rating on Molycorp stock.
Separately, 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 some concerns, 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 deteriorating net income, disappointing return on equity, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Metals & Mining industry. The net income has significantly decreased by 69.7% when compared to the same quarter one year ago, falling from -$194.31 million to -$329.79 million.
- 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 INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to -$75.80 million or 17.81% when compared to the same quarter last year. Despite a decrease in cash flow MOLYCORP INC is still fairing well by exceeding its industry average cash flow growth rate of -51.60%.
- Currently the debt-to-equity ratio of 1.97 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, MCP has managed to keep a strong quick ratio of 2.33, which demonstrates the ability to cover short-term cash needs.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 87.74%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 52.12% compared to the year-earlier 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.
- You can view the full analysis from the report here: MCP Ratings Report