Earnings Preview: Molycorp Inc.

| About: Molycorp, Inc. (MCPIQ)
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Company Profile

"With offices in the U.S., Europe, and Japan, Molycorp, Inc. (MCP) is the only U.S.-based company that is fully integrated across the rare earth mine-to-magnets supply chain. In addition to its current production of rare earth oxides at its flagship rare earth mine and processing facility at Mountain Pass, California, the company produces rare earth metals, rare earth alloys (such as neodymium-iron-boron and samarium-cobalt alloys) and rare metals such as niobium and tantalum. The rare earths and rare metals Molycorp produces are critical inputs in existing and emerging applications including: clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems; advanced water treatment technology for use in industrial, military and outdoor recreation applications and other technologies."

Molycorp Inc. is scheduled to hold its earnings conference call May 10th at 4:30pm. The annual shareholder meeting is scheduled for the end of May.

Current Analyst Estimates

The consensus analyst estimate is for Molycorp to report earnings of $0.13/share, falling mid way between the low end of the range ($0.00) and the high end ($0.24). The mean estimate for revenue comes in at $116.22 million between estimates for revenues as low as $87.66 million and as high as $163 million. The estimated earnings number, if attained, would represent year over year earnings growth of $0.16 while the revenue growth, if coming in at consensus estimates, would represent growth of 342.57% from the same quarter a year ago. Earnings estimates are derived from the 6 analysts covering the stock, only 4 analysts offer estimates for revenue.

Consensus Earnings Estimates Trend

Consensus estimates for earnings have declined from $0.26 to $0.13 over the past 90 days. This trend is exacerbated by the fact that since only 6 analysts cover the stock, one revision of an analysts earnings estimate will greatly affect the consensus estimate.

Current Analyst Price Targets

For 2012 there has only been one revision to an analysts recommendation which occurred back on February 2nd when Dahlman Rose reiterated their buy rating on the stock, but lowered their price target from $70 to $50 per share.

Ratio Analysis

To get a sense of the current valuation with respect to its competitors, below is the ratio analysis for Molycorp versus BHP Billiton (NYSE:BHP) and Vale S.A. (NYSE:VALE) along with the industry and S&P 500 averages.

MCP BHP VALE Industry S&P 500
Price / Earnings 20.42 8.25 5.54 6.0 15.3
PEG 0.66 1.31 --- --- ---
Price / Sales 5.29 2.48 1.88 1.7 1.3
Price / Book 2.53 1.77 1.29 2.2 2.2
Dividend Yield --- 3.14% 2.82% 2.9% 2.1%

Other competitors in the basic materials sector include Rio Tinto (NYSE:RIO), Peabody Energy (NYSE:BTU), and Cameco Corp. (NYSE:CCJ).

Based on these metrics, one would be quick to count out MCP because of its relatively high price to earnings ratio, price to book value and lack of dividend. It is essential to recall though that Molycorp still has considerable growth opportunities as underscored by the low PEG ratio. For those investors looking to take on additional risk, MCP may look attractive as it begins to see positive cash flows from operating activities.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BHP, MCP over the next 72 hours. Before earnings I may consider a covered call trade on MCP and/or BHP.