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Why Is Cleveland-Cliffs Stock Soaring Even after 4Q Miss?

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Nov. 20 2020, Updated 10:44 a.m. ET

Cleveland-Cliffs’ Q4 2018 results

Cleveland-Cliffs (CLF) released its fourth-quarter earnings today before the markets opened. It reported adjusted EPS of $0.55, which missed earnings estimate of $0.59. Its revenue came in at $696 million, which was 36% higher YoY but missed analysts’ estimate of $715 million.

The company’s adjusted EBITDA of $188 million was 40% higher YoY, while the net income rose 97% YoY to $610 million. Cliffs slightly missed the consensus estimate in its Q3 2018 earnings.

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While the company reported a slight miss on both top and bottom line, its stock price was soaring in the trading today on robust guidance and an upgrade to productive capacity at the new HBI (hot-briquetted iron) plant. Citigroup also revised its target price on CLF higher to $13 from $10 on the firm’s higher iron ore price estimates. At 10:40 AM EST, CLF’s stock was up ~9% as compared to a 0.5% drop in the S&P 500 (SPY) and a decline of 0.70% in the Dow Jones Industrial Average Index (DIA).

CLF’s guidance for 2019

CLF’s volumes in the mining and pelletizing division (previously US iron ore) increased by 20.6% YoY to 6.5 million tons in the fourth quarter. CLF attributed this rise to strong customer demand and two additional customer contracts during the period. Investors should, however, note that Cliffs’ guidance of 21 million tons for 2018 implied a sales volume of 6.94 million tons. CLF attributed the lower-than-expected volumes to unanticipated gale force winds in the Great Lakes area, which could impact shipping during October and November. CLF guided for production and sales volume of 20 million tons for 2019.

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Its realized revenue came in at $99.4 per ton, which implied an increase of 19% YoY mainly due to higher steel prices and pellet premiums. Cliffs doesn’t give guidance for the realized price. It, however, gives an expectation range based on a set of assumptions. The company mentioned that if the average of January for iron ore prices ($76 per ton), steel prices ($694 per ton), and pellet premiums ($76.5 per ton) continues into the rest of the year, its average realized prices should come in the range of $102 to $107 per ton.

Peers’ results

CLF’s US (SPY) (DIA) peers AK Steel (AKS), U.S. Steel (X), ArcelorMittal (MT), and Steel Dynamics (STLD) have already released their fourth-quarter of 2018 results. Overall, it has been a mixed earnings season for steel companies.

For more on Cleveland-Cliffs, be sure to read What’s in the Cards for Cleveland-Cliffs’ Q4 Results? and Revisiting the Case: How Does Cleveland-Cliffs Look Now?

Keep checking back with Market Realist’s Basic Materials page for an in-depth analysis of CLF’s Q4 2018 results and earnings call.

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