Which Iron Ore Miners Can Offer Valuation Upsides in 2017 and Beyond?
Vale SA (VALE) has a forward EV-to-EBITDA multiple of 6.1x, reflecting a 10% discount to its past five-year average multiple.
Wall Street analysts covering Cleveland-Cliffs estimate revenues of ~$2.4 billion in 2017. This implies growth of 14.7% year-over-year.
FBR & Co. upgraded Cleveland-Cliffs from “market-perform” to “outperform” on April 28, 2017, citing favorable risk-reward factors.
Vale’s 2Q17 results were not very encouraging for investors, as its earnings dropped sharply from $1.1 billion in 2Q16 to $16.0 million in 2Q17.
According to the consensus compiled by Thomson Reuters, 48% of the analysts recommend a “hold” for Vale stock compared to 43% recommending a “buy.”
While Rio Tinto’s revenues imply YoY growth of 17.0%, its EBITDA implies still higher growth of 41% to $17.5 billion in 2017.
According to Thomson Reuters, of the 15 analysts covering RIO, 73% gave it a “buy” recommendation, while 13% gave it a “hold” recommendation.
After coming under pressure, iron ore prices have rebounded to reach ~$78 per ton.
Of the 19 analysts covering BHP Billiton, 53% gave it a “buy” rating, 32% recommended a “hold,” and 16% gave it a “sell” rating.
Despite iron ore’s roller coaster ride, its prices have been resilient year-to-date. After several days of losses this week, iron ore prices have finally stabilized at ~$77 per ton.
Cleveland-Cliffs (CLF) is trading at a forward multiple of 5.9x, which is at a 38.3% discount to its trailing-five-year average of 9.5x.
In the trailing-three-month period, U.S. Steel (X) and Cliffs have returned 28.4% and 28.2%, respectively.
To gauge the steel demand outlook in China, it’s important to keep an eye on the property sector.
China is the largest consumer of the iron ore and contributes more than two-thirds of the world’s seaborne-traded iron ore.
Iron ore prices have been surging lately, after hitting a low of $57 per ton in June 2017, and prices are now close to $78 per ton.
Steel prices are one of the primary factors that drive US steelmakers’ earnings, and so it’s imperative for investors to track steel prices
While US steel production drives steelmakers’ top lines, it’s demand that ultimately drives production.
US steel production drives revenues for major US steelmakers, which are clients of the Cleveland-Cliffs (CLF).
Most of Cleveland-Cliffs’ (CLF) revenues come from its US Iron Ore segment.
The American steel industry has written to President Donald Trump requesting that he restrict steel imports immediately.