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Could There Be More Upside for Cliffs’s Revenue Estimates?

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Jul. 8 2016, Updated 4:06 p.m. ET

Revenue projections

Revenue projections from analysts are a proxy for the volumes sold times the prices received for a mining company. Wall Street analysts covering Cliffs Natural Resources (CLF) are projecting sales of $2.0 billion for 2016 and $2.1 billion for 2017. This implies a revenue change of -1.3% year-over-year in 2016 and 2.1% in 2017. Cliffs’s actual revenues fell 41% year-over-year in 2015.

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Revenue catalysts

Cliffs announced on June 9, 2016, that it will reopen its previously idled United Taconite plant two months early in August. To reflect this, it also upgraded its sales and production guidance. Its sales guidance now stands at 18 million tons, up 0.5 million tons from its previous guidance of 17.5 million tons. Similarly, production guidance increased by 0.5 million tons to 16.5 million tons.

The company also signed a new agreement with ArcelorMittal (MT) for ten years. Many analysts had anticipated the renewal of the ArcelorMittal (MT) contract by Cliffs, while some analysts had to revise their forecasts.

More upside?

The revenue estimates for the next four quarters have been revised upwards by 4% since the start of the year. Investors should note that US steel imports could keep falling due to anti-dumping duties. This fall would lead to US (SPY) steelmakers such as U.S. Steel (X), AK Steel (AKS), and ArcelorMittal (MT) operating at higher capacity utilizations. In this scenario, Cliffs’s volumes and pricing could see further upside.

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