Can Cleveland Cliffs’ Valuations Catch Up to Its Fundamentals?



Forward valuation

In the final article of this series, we’ll look at Cleveland-Cliffs’ (CLF) valuation and compare it to those of its US steel peers (SLX). We’ll also look at its forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple.

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Cleveland-Cliffs’ valuation

Among US (SPY) steel stocks (XME), U.S. Steel Corporation (X) and ArcelorMittal (MT) are trading at the lowest forward EV-to-EBITDA multiples of 3.06x and 3.65x, respectively. Cleveland-Cliffs, on the other hand, is trading at the highest multiple of 5.9x. Nucor (NUE) and Steel Dynamics (STLD) follow with multiples of 5.6x and 5.3x, respectively.

All these companies are trading at discounts to their trailing-five-year historical average EV-to-EBITDA multiples. Cleveland-Cliffs has, however, narrowed its discount compared to its historical average. It’s currently trading at a discount of 20% to U.S. Steel’s discount of 47% and ArcelorMittal’s discount of 33%.

Fundamentals and value

Cleveland-Cliffs’ fundamentals have been improving since its new management took over in 2014. Its debt concerns have mostly been taken care of. Its volatility due to its seaborne iron ore exposure is over, and its growth concerns have also been addressed in the form of the construction of an HBI (hot briquetted iron) plant.

Moreover, its existing US iron ore business is looking the best it’s looked in several years. While its multiple has already done some catching up with its fundamentals, the upside seems to be far from over. We’ve discussed this topic in Is There a Disconnect between CLF’s Valuation and Fundamentals? Some of these fundamentals have been heeded by investors.

In that article, we noted that investors expect the steel price environment to deteriorate significantly to justify these low valuations. Over the last month, investors have reassessed their expectations. Investors now expect a large portion of steel price gains to stick. While there could still be a correction in steel prices, they’re expected to remain reasonably supportive of earnings.

Stable to slightly falling steel prices and CLF’s attractive business prospects are expected to position the company to see significant returns.

See Revisiting the Case: How Does Cleveland-Cliffs Look Now? for an in-depth analysis of CLF’s fundamentals and valuations.


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