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Cliffs Natural Resources: 4Q16 Market Expectations

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Analyst recommendations

Market expectations for Cliffs Natural Resources (CLF) are varied. Of the analysts covering CLF stock, two have recommended a “buy,” five have recommended a “hold,” and two have suggested a “sell.” The average target price for Cliffs is $8 compared to the current market price of 8.72, implying a downside of 8.3%.

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Expectations from 4Q16

Analysts’ sales estimate for Cliffs is $672.0 million, which implies a very impressive rise of 41.0% YoY (year-over-year). Most of the expected rise is due to an improvement in iron ore prices and volumes between 4Q15 and 4Q16.

Analysts are expecting 4Q16 EBITDA (earnings before interest, tax, depreciation, and amortization) of $133.0 million. That implies a YoY rise of 75.0%. Implied margins are 19.8% compared to 15.9% for 4Q15. The impressive growth and margins are mainly due to cost reductions and higher prices.

Wall Street analysts’ current 4Q16 EPS (earnings per share) estimate for Cliffs is a rise of $0.22 per share. Cliffs has delivered a results beat five of the last eight times. Its share price has reacted positively to the news of estimate beats.

Rating changes since 3Q16

Since Donald Trump’s US presidential win in November 2016, most analysts have turned optimistic on the US steel sector. Trump’s stance includes protectionism and a focus on infrastructure.

Morgan Stanley (MS) has turned bullish on US steel (SLX) stocks after the election. Better fortunes for the US steel sector bode well for Cliffs Natural Resources, the only North American pure-play iron ore pellet supplier. Morgan Stanley analyst Evan Kurtz has upgraded Cliffs from “underweight” to “equal weight” and increased its target price from $3 to $9.

JPMorgan Chase (JPM) increased its target prices for steel stocks and Cliffs Natural Resources on November 29, 2016. JPM has an “overweight” rating for CLF and has raised its target price from $7 to $10.

Axiom analyst Gordon Johnson, on the other hand, believes that excess supply poses a risk for iron ore prices. For that reason, he recommends a short position on Cliffs, United States Steel (X), and Rio Tinto (RIO).

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