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Why Analysts Have Downgraded Their Earnings Estimates for CLF

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Analyst estimates

Analyst EBITDA (earnings before interest, tax, depreciation, and amortization) estimates reflect expectations of a company’s future profitability. Analysts usually derive these estimates from revenue projections, margin assumptions, or cost projections.

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Earnings estimates

Wall Street analysts are calling for EBITDA of $498 million for Cleveland-Cliffs (CLF) in 2017. The EBITDA estimate for 4Q17 is $111.6 million. Similar to the trend observed in its revenue expectations, while EBITDA is expected to rise for the full year on a year-over-year (or YoY) basis by 40% for 4Q17, the expected YoY decline is 29.4%. Along with lower expected volumes in 4Q17, lower expected realized prices are responsible for this negative growth in earnings.

After CLF’s 3Q17 earnings, its 2017 EBITDA estimates have also declined by 16%. This decline is mainly due to the adjustment in analysts’ volumes and realized prices for the company for the rest of 2017.

CLF’s adjusted EBITDA margin is 21.4% for 2017 and 18.4% for 4Q17. For the full year, the current EBITDA estimate is higher than the previous year’s 16.9%, and the estimate for 4Q17 is lower than the 21.0% margin in 4Q16.

Key drivers

The main drivers of Cleveland-Cliffs’ EBITDA are US (SPX) (IVV) hot rolled coil and seaborne iron ore prices. While seaborne iron ore prices have strengthened recently, the company is expected to attract discounts. The spot steel prices have remained steady in 4Q17.

Nucor (NUE) expects its earnings per share (or EPS) to fall sequentially in 4Q17 as compared to 3Q17. The company blamed the margin contraction due to the import surge for it EPS decline. Similarly, Steel Dynamics (STLD) also expects its EPS to fall sequentially in 4Q17. It, however, gave bullish commentary on its 2018 outlook. The outlook for other US steelmakers (X) (AKS) isn’t very positive.

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