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What Analysts Expect from Cleveland-Cliffs’ Q2 Earnings


Jul. 18 2019, Published 4:05 p.m. ET

Currently, 73% out of 11 analysts have given Cleveland-Cliffs (CLF) “buy” ratings. Another 27% have given the stock “holds.” It doesn’t have any “sell” ratings.

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Analysts’ ratings

A year ago, only 30% of analysts called CLF a “buy.” At the end of November, 63.6% of the analysts covering it gave it “buy” ratings. Among Cleveland-Cliffs’ US steel peers, ArcelorMittal has 80% “buy” recommendations. Nucor, Steel Dynamics, and U.S. Steel Corporation have 71.4%, 61.5%, and 25% “buy” recommendations, respectively. In contrast, analysts’ sentiment for CLF is improving. You can read more in Why Analysts Love CLF When US Steel Sector Is in Doldrums.

Analysts’ revenue estimates

Cleveland-Cliffs is set to release its second-quarter earnings results on Friday. You can read its earnings preview in Digging into Cleveland Cliffs before Its Q2 Earnings.

Analysts polled by Thomson Reuters expect Cleveland-Cliffs to post revenue $622 million in the second quarter, implying a fall of 12.9% YoY (year-over-year). This revenue fall should mainly be attributable to lower US steel prices. Despite President Donald Trump’s tariffs, US steel prices have been falling this year. Steel’s lackluster performance likely weighed on Cliffs’ realized prices in the second quarter.

However, as we discussed in Why CLF’s CEO Sees a Big Upswing in US Steel Prices Soon, CEO Lourenco Goncalves thinks US steel prices will see a big upswing in the next few months.

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Revenue catalysts in 2019 and beyond

For 2019, CLF expects volumes of 20.0 million tons in its mining and pelletizing division. While its sales volume guidance implies a fall of 3% YoY, it’s almost the full capacity the company can deliver—at least in the medium term. Analysts expect CLF to achieve nearly flat revenue growth of 0.3% in 2019, bringing its revenue to $2.34 billion.

Analysts’ estimates

Wall Street analysts’ EBITDA estimates reflect their expectations for a company’s future profitability. They usually determine these estimates based on revenue projections, margin assumptions, and cost projections.

Most analysts expect EBITDA of $213.3 million for Cleveland-Cliffs in the second quarter. This expectation implies a fall of 23.7% YoY. CLF’s 2019 EBITDA estimate is $793 million. The consensus projection for the year implies a potential upside of 3% YoY, mostly due to the expected increase in steel prices in the second half of the year.

Analysts expect the company’s EBITDA is expected to fall 14% in 2020. They expect its EBITDA to increase only 5.8% YoY in 2021. They don’t seem to have incorporated CLF’s hot briquetted iron plant’s earnings into their 2020 estimates. The plant is on schedule to be completed by mid-2020.

Peers’ results

Nucor, the largest US-based steel producer, released its second-quarter earnings results on Thursday. Nucor was the first major steel company to report its quarterly earnings results. Steel Dynamics is set to release its second-quarter earnings results on Monday. AK Steel and U.S. Steel Corporation are set to release their second-quarter earnings results on July 29 and August 1, respectively.

Nucor posted revenue of $5.9 billion in the second quarter. Its revenue was lower than analysts’ expectations. Nucor reported EPS of $1.26 in the quarter, slightly higher than its guidance but short of analysts’ expectations.


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