Market expectations for Cliffs Natural Resources (CLF) are varied. Of the analysts covering Cliffs, one analyst has a “buy” recommendation, eight have “hold” recommendations, and six have “sell” recommendations for Cliffs’ stock. The average target price for Cliffs is $2.94, compared with its current market price of $2.36, representing a potential return of 20%. Cliffs forms 0.05% of the Vanguard Materials ETF (VAW).
In a note released on September 24, Macquarie Research reaffirmed its “buy” rating, but reduced the target price from $7 to $6 per share for Cliffs due to changes in its iron ore price forecasts. FBR & Co. began coverage on Cliffs on September 18 with a “market perform” rating and reduced its target price from $3.50 to $3 on November 2, 2015. Many brokers, including Bank of America Merrill Lynch, Nomura Securities, and Citigroup, have also reduced their target prices for Cliffs since its 3Q15 results. Most of the downside is likely due to the volume downgrade by Cliffs’ management.
Analysts have also cut their revenues and earnings estimates since Cliffs’ 3Q15 results. They are projecting sales of $2.0 billion for the next four quarters and EBITDA (earnings before interest, tax, depreciation, and amortization) of $277.2 million. This implies an EBITDA margin of 14%. The actual numbers for the trailing four quarters are sales of $2.8 billion and EBITDA of $465.3 million, implying a margin of 16.5%. Declining sales and EBITDA are likely due to lower volume guidance from Cliffs and the negative sentiment in the US domestic steel market. While Cliffs’ management believes that the situation should improve going into 2016, the market is fairly conservative, and rightly so, given the current state of the US steel market as well as the seaborne scenario.
You can learn more about the iron ore industry at Market Realist’s Iron Ore page.