Rare earth producers have certainly been in focus for investors, with the Trump administration's trade war with China resulting in rare earth supplies from China (the world's largest producer of such key elements) seeing export restrictions as retaliation for sky-high tariffs introduced by this administration on the Chinese economy. Given the importance of these rare earths (which really aren't that rare, but the smelting and refining process for these metals is very concentrated in China) to battery technology and development domestically and around the world, the Trump administration appears to have its eye on the sector and finding ways to boost domestic production.
USA Rare Earth (USAR) is among the rare earth mining companies building a mine in the U.S. (this company's mine is located in Texas). Accordingly, this is among the key companies in this sector investors are watching closely for a few reasons.
Perhaps more important to investors considering this company is a recent report highlighting USA Rare Earth's acquisition of U.K.-based Less Common Metals.
Let's dive into what this deal contains and what it means for investors considering the company.
USAR Stock Drops Despite Deal to Get Larger
It's been quite a one-year chart for investors who follow USA Rare Earths.
The incredible moves USAR stock made in and around the timing of Trump's tariff imposition took this stock from around the $15 level pre-tariffs to a high of around $45 per share. That's a tripling of value in essentially a one-month span.
And while this stock's return back down to earth (and below its previous $15 level) may have been a move market participants were waiting for, the question is whether this stock is worth buying at current levels or not.
This deal for Less Common Metals should certainly bolster USA Rare Earth's position in its key operating market, with the combined entity better able to fully integrate its mining and smelting process to produce finished product. At the end of the day, that's what the U.S. market needs—more upgrading/refining capacity for these metals themselves. Mining the metals here, shipping them to China to be finished, and then shipping them back doesn't seem to make much sense. But that's how the sector operates (to a large extent) right now.
Keeping more of the company's production closer to home could bolster USA Rare Earth's long-term growth prospects, earn the company favor with the Trump administration, and represent a model other companies may seek to follow.
Unfortunately, given the size of the deal ($100 million in cash and 6.74 million shares), investors appear to be viewing this deal as one USA Rare Earth is overpaying for.
We'll have to see on this front, particularly if the combined company can be a meaningful competitor to existing Chinese players dominating this market.
What Do Analysts Think of USAR Stock?
Wall Street analysts currently have a price target of $22.75 per share on USAR stock, which implies impressive upside of around 60% from here.
This price target, as is the case with all price targets, is based upon a series of analyst notes and models from the past. Accordingly, during the company's past surge, analysts were quick to upgrade this stock. But with its recent decline, I do think we'll see more downgrades come, as the market appears to be ahead of the analyst community in calling this company's rise (and fall).
The rare earths space is certainly one that investors should be paying attention to. However, there are other players in this market, and it's unclear whether this acquisition of a U.K.-based company (with operations in the U.S.) will be able to deliver the kind of accretive upside many had expected a few months ago.
I think this current environment favors investors who can look at stocks objectively. In the case of USAR stock, this is one I'd be careful with right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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