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What Are 1Q15 Market Expectations for Cliffs Natural Resources?

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Apr. 27 2015, Published 1:03 p.m. ET

Analyst recommendations

Market expectations for Cliffs Natural Resources (CLF) are varied. Of the analysts covering Cliffs, one analyst has “buy,” eight have “hold,” and ten have “sell” recommendations for the stock. Thus, the consensus forecast advises investors to sell their positions in the company. The average target price for Cliffs is $4.96.

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Analyst estimates

The analyst sales estimate for Cliffs (CLF) is $550.9 million for 1Q15, compared to $1,206 million in 4Q14. The huge decline is mainly due to weaker iron ore prices and the idling of the Wabush mine.

Analysts’ estimate for adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for 1Q15 is $52.2 million. This is compared to $181.3 million for 4Q14 and $233.3 million for 3Q14.

The current Wall Street analysts’ earnings per share (or EPS) estimate for Cliffs in 1Q15 is a loss of $0.184 per share. Cliffs has delivered a results beat five times out of the last eight times. Cliffs’ share price has reacted positively to the news of estimate beats.

Downgrades in 1Q15

Axiom Capital Management downgraded Cliffs’ stock from a hold rating to a sell rating. It also reduced the target price from $9 to $2 on March 9. This led Cliffs’ stock to fall 10% in a single day.

On March 18, J.P. Morgan lowered estimates for Cliffs and withdrew its target price amid the relentless fall in iron ore prices and HRC (or hot-rolled coil) prices. RBC Capital lowered its target price for Cliffs from $7.5 to $6.0 on April 23.

Moody’s Investors Service downgraded Cliffs’ corporate family rating (or CFR) and probability of default rating to B1 and B1-PD, respectively. CFR is an opinion of a corporate family’s ability to honor all of its financial obligations. This downgrade, according to Moody’s, reflects expectations for a weaker performance in the Asia Pacific Iron Ore (or APIO) segment.

As far as market sentiment is concerned, Cliffs seems to be on the receiving end, mostly due to the worsening current and future outlook for iron ore prices. This in turn is due to the supply glut by players such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE). These three stocks form 31.2% of the iShares MSCI Global Metals & Mining Producers ETF (PICK). The SPDR S&P Metals and Mining ETF (XME) also invests in this space and CLF forms 3.8% of its holdings.

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