Why Analysts Could Raise Their Earnings Estimates for CLF



Revenue estimates could rise

Cleveland-Cliffs (CLF) has guided for production and sales volumes of 20 million tons each this year, including 500,000 tons of direct-reduced grade pellets to be delivered to its HBI (hot briquetted iron) plant in Toledo. The sales volume guidance implies a 3% YoY (year-over-year) decline. However, CLF’s realized prices could rise due to Vale’s (VALE) dam burst boosting iron ore prices and pellet premiums, prompting analysts to raise their revenue estimates. Analysts currently expect CLF’s revenue to fall 2.7% YoY to $2.27 billion this year due to lower volumes.

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Could analysts raise their earnings estimates?

Analysts expect CLF’s EBITDA to fall 4.3% YoY to $733 million this year. As they bump up their revenue estimates, their EBITDA estimates should also increase. The company expects its per-unit costs to align with last year’s, which, along with higher revenue, could boost its EBITDA.

HBI plant not factored into estimates?

Analysts do not seem to have incorporated CLF’s HBI plant earnings in their 2020 estimates. The plant is on schedule to be completed by mid-2020.

During CLF’s Q4 2018 earnings call, CEO Lourenco Goncalves said, “the boost in profitability we expect to see from HBI is at best underappreciated by outside investors and at worst, not factored in at all in their valuation models.” As analysts factor in HBI, their earnings projections could rise.


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