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Cliffs Natural Resources: Its 2Q15 Market Expectations

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Analyst recommendations

Market expectations for Cliffs Natural Resources (CLF) are varied. Of the analysts covering Cliffs, one analyst has “buy,” eight have “hold,” and eight have “sell” recommendations for Cliffs stock. The average target price for Cliffs is $4.59.

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Analyst estimates

The analyst sales estimate for Cliffs (CLF) is $572.4 million for 2Q15.

Analysts’ estimate for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2Q15 is $74.2 million.

The current Wall Street analysts’ EPS (earnings per share) estimate for Cliffs in 2Q15 is a loss of $0.106 per share. Cliffs has delivered a results beat six out of the last eight times. Cliffs share price has reacted positively to the news of estimate beats.

Downgrades since 1Q15

In a note released on June 30, Bank of America Merrill Lynch reiterated its “underperform” rating on Cliffs’ share price but downgraded its earnings estimate for 2015 by half ($0.10 from $0.20) on the back of lower iron ore and metallurgical coal price estimates. On the same day, Australia also reduced its iron ore price forecast for 2015 by 10% to $54.40 per ton. This resulted in a strong negative 9.6% price reaction for Cliffs on June 30.

Then came the Deutsche Bank’s target price reduction on July 2 from $5.50 to $5.00. This also elicited strong reactions from investors, as the stock fell another 8.3% in a day.

As far as market sentiment is concerned, Cliffs Natural Resources (CLF) seems to be on the receiving end. Most of it is 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), Fortescue Metals Group (FSUGY), and Vale S.A. (VALE). These three stocks form 31.6% of the iShares MSCI Global Metals & Mining Producers ETF (PICK). The SPDR S&P Metals and Mining ETF (XME) also invests in this space.

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