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Has Wall Street Been Kind to Cliffs Natural Resources?

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Analyst sentiments

Analyst recommendations and ratings are one of the most important market sentiment indicators you should look at. Analyst 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 a bottom and better times ahead, and vice versa.

The above graph shows analysts’ recommendations for Cliffs Natural Resources (CLF) along with those for US (VTI) (QQQ) steel peers United States Steel (X) and AK Steel (AKS).

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Consensus rating

Cliffs Natural Resources had no “buy” ratings until the end of May 2016. Now it has two. Of the nine analysts covering the company, four have given it a “hold” recommendation, and three have recommended a “sell.”

The average target price for CLF is $5.57 against its current market price of $5.66. The target price implies a downside potential of 1.6%. Macquarie has the highest target price for Cliffs at $10, while Credit Suisse (CS) and Axiom Capital have the lowest target price of $2.

Recent analysts’ actions

On October 7, 2016, Credit Suisse resumed its coverage of Cliffs with an “underperform” rating and a target price of $2. Credit Suisse analyst Curt Woodworth is bearish on the growth prospect of iron ore. He forecasts the commodity price to average between $40 and $45 per ton in 2017 and 2018. Woodworth also feels that most of the positives are already factored in to the stock.

FBR & Co. also reiterated its “market perform” rating for Cliffs Natural Resources in a report released on October 13, 2016. It has a target price of $6 for the stock.

On August 29, 2016, Macquarie slightly reduced its target price for Cliffs from $11 to $10 while maintaining 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.

In the next part, we’ll see what’s driving Cliffs Natural Resources’ revenue and earnings estimates.

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