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Is There More Upside to CLF’s Earnings Estimates?

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Nov. 20 2020, Updated 3:26 p.m. ET

Factors impacting Cliffs

The factors that are impacting Cliffs Natural Resources (CLF) are quite different than the factors that are impacting global iron ore players such as Rio Tinto (RIO) and BHP Billiton (BHP). This is because most of Cliffs’s revenues are tied to the domestic US steel market.

US steel prices have been increasing since February 2016, mainly due to the anti-dumping duties on steel imports. Cliffs is also gaining due to the acquisition of new customers as well as the renewal of a crucial long-term contract with ArcelorMittal (MT). It has also made significant strides year-to-date to reduce its debt, which was a major concern for investors.

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Analyst projections

Wall Street analysts covering Cliffs Natural Resources (CLF) have increased their revenue projections since the start of the year, from ~$1.8 billion to ~$2 billion for 2016. The revenue projection implies a change of -3% year-over-year. Cliffs’s actual revenues fell by 41% year-over-year in 2015.

Cliffs has also upgraded its sales and production guidance. This hasn’t been factored in to analyst estimates. There could also be more upside for Cliffs due to higher prices and higher volumes in the United States (DIA).

Earnings estimates

Analysts have consistently revised their EBITDA (earnings before interest, tax, depreciation, and amortization) projections upward for Cliffs. Its EBITDA has been revised upward by an impressive 90% since the start of the year, to $466 million for the next four quarters.

This is mostly due to higher expected steel prices and certainty regarding futures volumes after the new contract with ArcelorMittal (MT). Cliffs’s better-than-expected cost-cutting efforts might also have encouraged analysts to increase their EBITDA estimates.

More upside?

Most analysts have now taken notice of higher steel prices in the domestic US steel market. But some of Cliffs’s competitors might fall in the coming few months. This could provide a volume upside for the company.

Any weakness in steel prices, on the other hand, could lead to a downward revision to earnings estimates for US steel companies such as Cliffs, United States Steel (X), AK Steel (AKS), and ArcelorMittal (MT).

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