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Why Credit Suisse Double-Upgraded Cleveland-Cliffs

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Credit Suisse double-upgrades CLF

On February 7, 2018, Credit Suisse (CS) analyst Curt Woodworth upgraded Cleveland-Cliffs (CLF) stock two notches from “underperform” to “outperform.” The analyst also raised the stock’s target price by 80% from $5.0 to $9.0.

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Rationale for CS’s upgrade

Woodworth’s rationale for the upgrade was mainly related to the optimistic prospects for US HRC (hot rolled coil) steel prices in 2018. The analyst also sees strong accretion from the company’s HBI (hot briquetted iron) plant, which he feels will be CLF’s “move away from less profitable pellet contracts towards high margin DR pellet based HBI.” The analyst also stated that the recent US tax reform should see $250 million in cash refunds for the company through 2022.

Other ratings for CLF

On January 19, 2018, Vertical Group initiated coverage on Cleveland-Cliffs with a “sell” rating and a target price of $3.87. The company’s analyst cited rising risks to US metal and iron ore prices as the major reason for the rating. Vertical analyst Gordon Johnson expects a sharp correction in CLF’s shares over the next three to four months due to weakness in iron ore prices. He sees China’s steel mill margins continuing to fall, leading to weakness in the iron ore space.

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Johnson added, “In short, with the majority of investors focusing on CLF’s coming 2018 guidance (which many expect to be impressive given where U.S. HRC/iron ore prices are today) as well as Trump’s Section 232 decision, we see the current ‘trouble’ brewing in the world’s most important steel market (i.e., China) as largely flying under the radar.”

B. Riley Financial reiterated its “buy” rating on CLF stock on January 26, 2018. The company has given CLF a target price of $11.

KeyBanc Capital Markets analyst Philip Gibbs also believes that right now, the US steel sector (SLX) looks more attractive than it has in the past. While the analyst upgraded Timkensteel (TMST) from “underweight” to “sector weight” and reaffirmed the rating on Steel Dynamics (STLD), he believes that the stock prices of AK Steel (AKS) and U.S. Steel (X) are factoring in an elevated pricing environment. He also feels that Cliffs “seems under-appreciated despite recent buoyancy in [the] North Atlantic Basin pellet premium.”

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