What Analysts See in Cliffs Natural Resources under Trump’s Presidency



Earnings drivers

The factors affecting Cliffs Natural Resources (CLF) are quite different than those affecting global iron ore players Rio Tinto (RIO) and BHP Billiton (BHP). Only a small part of CLF’s revenues come from its Asia-Pacific division.

Most of Cliffs Natural Resources’s revenues are tied to the domestic US (QQQ) steel market. US steel prices and order books for customers are the major revenue drivers for Cliffs Natural Resources’s US division.

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Analysts’ revenue projections

Analysts’ revenue projections are proxies for volumes sold multiplied by prices received for mining companies. Wall Street analysts who cover Cliffs Natural Resources (CLF) project sales of $2.5 billion in 2017. This implies 19% year-over-year (or YoY) growth.

In the past year, analysts have raised their revenue projections from ~$1.8 billion to ~$2.5 billion for the year. After Donald Trump’s election win in November 2016, analysts have increased their estimates for steel prices going forward. Cliffs Natural Resources’s actual revenues grew 4.8% YoY in 2016.

EBITDA estimates

Analysts have consistently revised their EBITDA[1. earnings before interest, tax, depreciation, and amortization] projections upward for Cliffs Natural Resources (CLF). In the past six months, its EBITDA estimates have seen an upward revision of 103%. This comes mainly on the back of higher projected steel prices and lower costs. CLF’s EBITDA estimate for 2016 now stands at $671 million, implying a margin of 27.0%. The margin for 2016 was only 17% in comparison.

As steel prices recovered in 2016 due to trade cases, analysts have become more optimistic about the US steel sector. Trump’s win acted as another positive catalyst. His stance on protectionism and promises for infrastructure spending went a long way in boosting analyst sentiment toward the US steel sector. Investors should keep an eye on steel prices in the US market to get a sense of CLF’s future earnings.

Any weakness in steel prices could lead to a downward revision in earnings estimates for US steel companies such as Cliffs Natural Resources, U.S. Steel (X), AK Steel (AKS), and ArcelorMittal (MT).

Keep checking in with Market Realist’s Iron Ore page for the latest updates on iron ore prices and iron ore miners.



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