This morning we reported that JPMorgan cut estimates for rare earth giant MolyCorp downgrading it to neutral from overweight.
It also cut EPS estimates and price target to $66 from $105 to reflect the recent drop in rare earth prices. The stock is off 21.11% today and down 16.19% year-to-date. Now Morgan Stanley has said the sell-off is hasty and recommends buying the stock: "MCP shares are down 20% today on concerns about weakening rare earth oxide spot prices in China (down 40% from peak). The stock is pricing REOs at ~$28 per kg (vs. $111 spot) and no credit for downstream. A key concern is cerium and lanthanum prices, which are down ~50% to $80 per kg each. An unsubstantiated report in Metal Pages suggested cerium and lanthanum may be exempted from the next export quotas, increasing supply, given rising customer concerns. Our price deck already factors in LT supply growth for cerium and lanthanum. Regardless of the next Chinese quota, cerium and lanthanum supply will meaningfully increase when Mountain Pass and Mount Weld start production in 2012, as both are very rich in the two metals. Our base case REO price deck of $47/kg is based on $16/kg cerium and $15/kg lanthanum and already reflects weaker LT fundamentals than for neodymium and praseodymium. Also, management has been working to develop new applications for cerium (XSORBX) to absorb excess supply and improve market balance."Prices are expected to stabilize in the fourth quarter as China continues to come down hard on illegal mining. However risks to the stock include, a drop in spot prices when MCP supplies increase, execution risks at Mountain Pass and Mount Weld since the project is still in pre-production, and risks to its refining and marketing strategy.Note: REO refers to rare earth oxides.Don't Miss: The Rare Earth Projects That Will Reshape The Industry >