Lynas shares: After a year of outperformance, is it still a buy?

The Lynas Rare Earths Ltd (ASX: LYC) share price has seen massive volatility over the last year. In the past 12 months, it’s up by almost 90%, as the chart below shows. That compares to a rise of less than 5% for the S&P/ASX 200 Index (ASX: XJO).

But the chart also shows that it has fallen 40% from that peak in mid-October.

After such a significant change in the Lynas share price, it’s definitely worthwhile asking whether it’s a beaten-up opportunity or if it’s overvalued at this level.

Let’s take a look at what experts from UBS are expecting from Lynas.

Buy rating on Lynas shares

The rare earth miner has been in the spotlight this year as China and the US tussle over access to rare earths, which are key materials for devices and other advanced technology.

The fact that Lynas is a producer of rare earths makes it a strategic player in the global economy.

UBS has a buy rating on Lynas shares. The broker says that it’s positive on Lynas based on both its position in the country and the broader value chain. The broker is positive on the business because UBS believes the business has strong IP and an economic moat when it comes to heavy rare earth separation, as well as supply scarcity within the global heavy rare earth sector.

The broker also notes that Lynas’ workforce is skilled and has a low level of turnover, with more than 70% employees having been at the Lynas LAMP facility in Malaysia for at least ten years. UBS suggests this is an understated advantage in a particularly complex field.

UBS also noted that the rare earth miner has reinvested back into Malaysia, which is an advantage considering the “delicate geopolitical backdrop”. The broker suggests the efforts to expand its heavy refining facility over the next couple of years will help earnings in the longer-term.

However, recent power disruptions at the Kalgoorlie facility has impacted production, with a loss of around 1 month in the second quarter of FY26.

UBS noted:

…inherent challenges faced by the grid (single transmission line, aging infrastructure, tough inland conditions) have impacted the entire region and in particular LYC where even a relatively small outage can have outsized impacts and has compelled LYC to look for other off-grid options even while it is still working with the government and electricity supplier Western Power in improving current availability.  

…From a broader market perspective, we remain alert to the still tenuous macro relationship between China and the USA, with recent U.S. policy expert feedback informing us that the move to decouple rare earths (and magnet) supply chains remains a priority despite the one-year hold on China rare earths controls.

Price target and earnings estimate

UBS forecasts that Lynas could deliver net profit of $288 million in FY26, $528 million in FY27 and $1.05 billion in FY28.

With that exciting forecast of earnings growth in the years ahead, the broker has a price target of $17.70 on the Lynas share price, suggesting it could rise by close to 40% over the next year.

The post Lynas shares: After a year of outperformance, is it still a buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Lynas Rare Earths Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.