MP Materials vs. USA Rare Earth: Which Rare Earth Stock Is the Better Buy?

Although it could be tempting to compare MP Materials (NYSE: MP) and USA Rare Earth (NASDAQ: USAR) in a zero-sum competitive game, the reality is that they are complementary companies. Probably the greatest difference between the two lies in their risk profiles: MP Materials represents the lower-risk/lower-return option compared to USA Rare Earth’s higher-risk/higher-potential-return proposition.

Risk and return for MP Materials and USA Rare Earth

The market clearly understands the differing risk profiles, because on current valuations, USA Rare Earth trades at a significant discount to MP Materials. That disparity becomes apparent when looking at their forward valuations based on expected earnings and free cash flow in 2029 and 2030. Those will be key years for both rare-earth companies because by then, MP Materials plans to have its new “10X” magnet-producing facility in Northlake, Texas, in operation, and USA Rare Earth plans to have its rare-earth mine in Round Top, Texas, commissioned and producing.

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One thing is clear from looking at Wall Street’s expectations and implied valuations: Either USA Rare Earth is the buy of the century or the market is highly skeptical of its ability to get near its ambitious targets of revenue of $2.6 billion, earnings before interest, taxation, depreciation, and amortization (EBITDA) of $1.2 billion, and free cash flow (FCF) of $900 million.

Data source: Visible Alpha.

MP Materials advantages over USA Rare Earth

The discrepancy reflects several advantages MP Materials has over USA Rare Earth right now. First, MP Materials’ rare-earth mine in Mountain Pass, California, is already in operation, while USA Rare Earth plans to have Round Top commissioned in 2028.

Second, MP Materials is significantly ahead in securing foundational customers. In fact, on the last earnings call, CEO Jim Litinsky said its magnet-producing Independence facility in Fort Worth, Texas, was “fully sold out between GM and Apple; it’s possible that we’ll fit another customer or two in there.” As for the new 10X facility MP Materials is building, it has a 10-year agreement with the Department of Defense that establishes price floors for its products and includes a commitment “to ensure that 100% of the magnets produced at the 10X Facility will be purchased by defense and commercial customers with shared upside.”