CLF and U.S. Steel Stock Fall, Coronavirus Spreads

  • Cleveland-Cliffs (NYSE:CLF) and U.S. Steel Corporation (NYSE:X) stocks have fallen this week amid the broader market sell-off. The metals and mining sector barely recovered from the US-China trade war late last year. Now, the coronavirus-led sell-off has hit the industry.
  • CLF and X have fallen almost 32% each YTD (year-to-date) based on Thursday’s closing prices. U.S. Steel is approaching its all-time lows, which it hit in the first quarter of 2016.

CLF and U.S. Steel stock fall

CLF and U.S. Steel stocks fell 9.8% and 5.9% in Thursday’s trade. Both of the stocks have fallen almost 32% YTD. The broader market sell-off is hurting steel and iron ore stocks. Notably, metals and mining stocks are usually high beta, which means that they rise or fall more than the broader markets. Looking at the fundamental picture, steel prices in the US have come down over the last month amid concerns about the coronavirus. Since prices have fallen, US steel mills announced a round of price hikes, according to Argus Media.

Cleveland-Cliffs and AK Steel merger

Domestic mills announced a round of price hikes last month. However, the price hikes didn’t hold ground amid weakness in global markets. In my view, the current round of price hikes might not hold ground either due to pessimism in the markets. However, the price hikes could help prevent another fall in US steel prices. Domestic steel prices also impact CLF’s realized prices. The company has received regulatory approvals for its merger with AK Steel (NYSE:AKS). The merger will likely be completed next month—subject to shareholder ratification. CLF would become an integrated steel company after the merger. So far, the company only sells iron ore pellets. CLF’s hot-briquetted iron plant is also coming online this year. The company expects the plant to add $50 million to its 2020 EBITDA and $200 million to its 2021 EBITDA.

Analysts’ recommendations for CLF and U.S. Steel stock

Wall Street is bearish on U.S. Steel stock. None of the analysts recommended the stock as a “buy.” Meanwhile, 53% of the analysts recommend a “hold,” while the remaining analysts polled by Thomson Reuters recommend a “sell” or equivalent rating. The company’s mean consensus target price of $8.38 represents a potential upside of 10.1% over its closing prices on Thursday.

However, analysts are somewhat bullish on CLF stock. Among the analysts, 33% recommend CLF stock as a “buy” or higher, while 11% recommend a “sell.” The remaining analysts recommend a “hold” rating. The company’s target price of $8.18 represents a potential upside of 46% over the current prices.