Why is the market reacting?

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Market reaction

Market analysts have started turning bearish on Cliffs Natural Resources (CLF). There are many downgrades. The target price has been revised down in recent weeks. This follows the sustained iron ore price weakness. It’s impacting CLF in many ways.

EPS estimate

Rating and target price changes

Goldman Sachs has a neutral rating on stock. However, it revised down the target price for the company’s share. The target price has also been revised down by Deutsche Bank from $19 to $17. Wells Fargo & Co. and Nomura downgraded Cliffs from a buy rating to a reduce rating. JPMorgan downgraded the stock from overweight to neutral. It cut the target price from $18 to $5. Nomura also cut the target price from $18 to $5.

Earnings revisions

In 3Q14, the estimated earnings per share (or EPS) is down 21.5% in the last four weeks. There were also EPS downgrades from analysts covering the stock. The downgrades followed the weak price environment. The above chart shows Cliffs’ share price. The market revised the EPS for 2014.

This follows down revisions in the consensus iron ore prices. This will impact iron ore companies including BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE). However, Cliffs will be impacted the most because of its high cost profile and heavy debt load.

Investors can invest in the SPDR S&P Metals & Mining ETF (XME). It gives investors exposure to the metals and mining sector.

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