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What’s Driving Analyst Sentiment for Cliffs Natural Resources?

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Analyst sentiments

Analyst recommendations and ratings are one of the most important market sentiment indicators for investors. Analysts’ ratings tell you how bullish or bearish analysts are on a particular company or industry. At the extreme, the sentiment could be an indicator of a change in direction going forward. Generally, when everyone is bearish and dumping stocks, it could mean the bottom and better times ahead, and vice versa.

The above graph shows analysts’ recommendations for Cliffs and its US (QQQ) steel peers such as United States Steel (X) and AK Steel (AKS).

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Cliffs’s ratings

Of the nine analysts covering Cliffs Natural Resources (CLF), five have given it a “hold” recommendation, and two have recommended a “sell.”

The average target price for CLF is $6.50 compared to its current market price of $6.30. The target price implies an upside potential of 3.2%.

Macquarie has the highest target price for Cliffs at $11. Axiom Capital has the lowest target price of $2.

Recent analyst ratings

Morgan Stanley has reiterated its “sell” rating with a target price of $3 for CLF stock as of September 27, 2016. Axoim Capital also reaffirmed its “sell” rating for Cliffs on September 26, 2016. The firm has a target price of $2 for the stock.

On August 29, 2016, Macquarie slightly reduced its target price for Cliffs from $11 to $10 and maintained its “outperform” rating. It reduced the target price due to the share price dilution following the company’s recent equity issuance. However, it remains bullish on the company’s prospects in the medium to long term.

The two upgrades for the company came from JPMorgan Chase (JPM) and Macquarie after a slew of positive developments for the company, which we’ve already covered in this series.

What’s driving sentiment?

Apart from company-specific factors, the brighter outlook for US steel prices has driven the sentiment for Cliffs until now. As we saw previously in this series, steel prices have started to fall again. Although the fall might not be very severe, in the absence of any positive catalyst for the stock, the sentiment might remain weak for the company in the near term.

In the next and final part of our series, we’ll take a look at Cliffs Natural Resources’ valuation and key catalysts going forward.

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