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What to Expect from Cliffs Natural Resources’ 2Q17 Earnings

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Part 11
What to Expect from Cliffs Natural Resources’ 2Q17 Earnings PART 11 OF 11

Watch for These Valuation Catalysts as CLF’s 2Q17 Results Approach

Stocks trading below long-term averages

The graph below depicts the forward EV-to-EBITDA1 multiples of Cliffs Natural Resources (CLF) and its US steel peers.

Among these steel stocks, ArcelorMittal (MT) is trading at the lowest forward valuation multiple of 4.7x. AK Steel (AKS) has the highest multiple of 7.1x.

Watch for These Valuation Catalysts as CLF&#8217;s 2Q17 Results Approach

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U.S. Steel Corporation

After weak 1Q17 results from U.S. Steel Corporation (X), its forward valuation multiple slid to 4.4x in April.  Its multiple has since recovered 32% to its current level of ~5.8x.

Even after the recent recovery, U.S. Steel Corporation is trading at a 35% discount to its trailing five-year average historical multiple of ~8.8x. This is also true for the other US steel stocks. Nucor (NUE) is trading at a 24% discount, and Steel Dynamics (STLD) is trading at a 16% discount to its historical long-term average multiple.

Cliffs Natural Resources’ valuation

Cliffs Natural Resources (CLF) is trading at a forward multiple of 6.1x. This multiple implies a 37% discount to its trailing-five-year average of 9.6x.

Since its last earnings release in April, CLF’s EBITDA estimates have fallen 12%. These downgrades are in line with the company’s downgrade of its EBITDA guidance, mainly due to ongoing weakness in US steel prices and seaborne iron ore prices.

Other catalysts

Cliffs Natural Resources plans to announce its 2Q17 results before the market opens on July 27, 2017. Any further updates on its new HBI plant could help the stock re-rate. Also, positive management commentary regarding its volumes and pricing could help the stock.

Meanwhile, a positive outcome of the ongoing Section 232 probe into US steel imports could act as a positive catalyst for Cliffs Natural Resources and its US-based (SPY) (SPX) peers.

Keep checking Market Realist’s Iron Ore page for the latest results for Cliffs Natural Resources and its seaborne peers.

  1. earnings before interest, tax, depreciation, and amortization
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