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Cliffs’ Recommendations after 4Q16: Why Analysts Have Turned Bullish

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Nov. 20 2020, Updated 3:48 p.m. ET

Analyst sentiments

Analyst recommendations and ratings are among the most important market sentiment indicators that you can watch. Analyst ratings tell you how bullish or bearish analysts are on a particular company or industry at a given time.

At the extreme, a given 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.

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The above graph shows the analysts’ recommendations for Cliffs Natural Resources (CLF) along with those for US (VTI) (QQQ) steel peers United States Steel (X), AK Steel (AKS), and Nucor Steel (NUE). Cliffs has “buy” and “sell” recommendations from 22% of analysts each, while 56% of the analysts are recommending a “hold.” Its target price implies a downside of 17% at the current market price of $11.15.

FBR and Macquarie upbeat

FBR increased Cliffs’ target price from $10 to $11 after Cliffs’ solid 4Q16 earnings beat and a still stronger outlook for 2017. It also views the company’s equity offer positively. (CLF)+PT+Raised+to+$11+at+FBR+Capital+on+4Q+Beat+and+2017+Guidance/12525263.html" target="_blank">FBR’s analyst mentioned the following about the offer: “We view the company’s decision to proactively address 2020 maturities positively, especially on the recent strength in iron ore prices. Supporting the company’s initial 2017 EBITDA guidance of $850 million, well above Street estimates.”

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Macquarie is also upbeat about Cliffs’ 2016 results as well as the equity offering announcement. It believes that this is an important step toward removing its debt burden. It could also put Cliffs onto a path of stronger growth. Macquarie added, “If management’s guidance proves to be accurate, we believe the shares may be worth as much as $20.”

J.P. Morgan raised its target price for Cliffs’s stock from $10 to $12 but retained its “overweight” rating on the stock.

Axiom’s differing view

Axiom’s analyst, Gordon Jonson, however, has a different point of view. While speaking to Benzinga, the analyst mentioned that not only does he expect iron ore prices to fall from current levels, the analyst also views auto sales as a headwind for the US steel industry in 2017. Axiom currently has a “sell” rating on Cliffs.

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