What's Happening?
Morningstar has begun coverage on Lynas Rare Earths Ltd, a leading rare-earths producer outside China, with a fair value estimate of A$7 per share. Despite projecting a 65% compound annual growth rate in EBITDA over the next five years, driven by increased sales and higher prices of neodymium-praseodymium (NdPr), Morningstar warns that Lynas shares are overpriced. The current market price assumes a midcycle NdPr price of approximately $220/kg, significantly higher than Morningstar's estimate of $100/kg. Analysts are divided on the stock, with seven out of fourteen rating it as a 'buy' or higher, while others suggest holding or selling.
Why It's Important?
The valuation of Lynas is critical as it reflects broader market expectations for the rare-earths sector, which
is vital for technologies like electric vehicles. The discrepancy between Morningstar's valuation and the market price highlights potential over-optimism in the sector, which could impact investor decisions and market stability. The rare-earths market is strategically important, given its role in global supply chains and geopolitical considerations, particularly as countries seek to reduce reliance on Chinese production.
