Is There More Downside to Analysts’ EBITDA Estimates for Cliffs?



Analysts’ EBITDA estimates

Analysts are expecting EBITDA (earnings before interest, tax, depreciation, and amortization) of $210 million for the next four quarters for Cliffs Natural Resources (CLF). This implies an EBITDA margin of 11.8% for 2016. The implied EBITDA margin for 2017 is 12.3%.

The results for the trailing four quarters are sales of $2 billion and EBITDA of $293 million, implying a margin of 14.6% and 27.3%, respectively, for 2015. Declining sales and EBITDA are due to declining volumes and lower realized price expectations. This is mainly driven by negative sentiment in the US (VTI) domestic steel market and the seaborne market. While Cliffs has restarted its Northshore mining facility in Minnesota, it still has one idle mine, United Taconite.

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Analysts are projecting EBITDA of $20.6 million for 1Q16, which is just 10% for the whole year’s estimate of $210 million. This is mostly due to the seasonality factor. Cliffs operates in the Great Lakes area of the United States, which is frozen in the winter months when shipments are negatively impacted.

Upside and downside

Given the drastic fall in Cliffs Natural Resources’ revenue and EBITDA in 2015 compared to 2014 and the continuing bleak outlook for seaborne iron ore prices and steel prices, analyst estimates for 2016 could have more downside. However, investors should note that US steel imports could keep falling due to anti-dumping duties. This would lead to US steelmakers such as United States Steel (X), AK Steel (AKS), and ArcelorMittal (MT) operating at higher capacity utilization. In this scenario, Cliffs’s volumes and pricing could have an upside.

In the next part of this series, we’ll see if Cliffs’s net debt is still a problem.


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