Cliffs Natural Resources (CLF) has garnered “buy” and “sell” recommendations from 25% of analysts each, while 50% of analysts have recommended “holds” on the stock. Its target price implies an upside of 20% compared to its current market price of $6.26.
FBR upgrades CLF
FBR Capital upgraded Cliffs Natural Resources stock from a “market perform” to an “outperform” on April 28, 2017. Analyst Lucas Pipes cited favorable risk-reward factors as the major reason for the upgrade.
Pipes noted, “Against the IODEX [Iron Ore Index] curve, and assuming long-term iron ore prices of $55/Mt [metric ton], we estimate that CLF is trading today at a level supporting a 14.5% rate of return on FCF. Our $10 price target assumes that the stock will discount a 9% rate of return against the IODEX curve. This implies a 2018 EV/EBITDA [enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 7.3x.”
He continued, “We estimate the downside case for the stock near $4 per share, which underwrites CLF at 4.5x EBITDA on $55/Mt long-term iron ore prices. This puts the upside at 49%, versus downside of 39%, according to our estimates.”
Axiom Capital’s opposing view
Axiom Capital analyst Gordon Johnson, who is bearish on iron and steel, is also bearish on Cliffs. He even recently called into question Cliffs’ CEO’s recent purchase of company stock as bearish.
As reported by Barron’s, Johnson stated, “While we find CLF’s CEO Lourenco Goncalves comments on his conference calls ‘legend’, his investment prowess in buying CLF’s stock has not been good. In fact, the last time Mr. Goncalves made a substantial purchase of CLF’s stock was 3/4/15…when it was essentially at where it is today (i.e., the stock was trading at $6.72/shr as of 3/4/15).”
Johnson continued, “How did that work out for Mr. Goncalves? Well… by 1/12/16 (a short 10 months later), the stock had fallen to $1.26/shr, or a -81.3% loss on his purchase. Thus, we believe today’s purchase by Mr. Goncalves could actually be a strong SELL signal.”
Axiom Capital has a “sell” rating and a target price of $2 on CLF.
CEO Lourenco Goncalves hit back at the report in a press release, stating that it was “an intentional attempt to manipulate Cliffs’ share price to support the ‘bearish’ position Mr. Johnson’s firm Axiom has historically taken with respect to Cliffs’ stock.”