Cleveland-Cliffs is scheduled to release its Q2 2021 earnings before the market opens on Jul. 22. Analysts expect the company to post EPS of $1.47 per share, and CLF has guided for Q2 adjusted EBITDA of $1.3 billion and full-year EBITDA of $5 billion. Many investors are wondering if they should buy CLF stock now, before the company's Q2 earnings.
Cleveland-Cliffs, an integrated steel and iron ore company, acquired ArcelorMittal's U.S. assets and AK Steel. Hopes of economic recovery, stimulus packages, and the new infrastructure bill have propelled steel stocks to greater heights.
CLF stock’s outperformance
CLF stock has returned 48 percent year-to-date, beating the S&P 500’s 16 percent return, as well as peers. U.S. Steel Corporation (X) has climbed 38 percent this year. Cleveland-Cliffs stock has also caught the attention of Reddit subgroup WallStreetBets, which notoriously pumped up GameStop and AMC Entertainment stock.
Many Redditors are positive on CLF, highlighting U.S. steel prices' strong outlook and the infrastructure bill, which will boost demand for U.S. steel mills. WallStreetBets seems to have pushed up CLF stock, though the stock has not subsequently crashed like other meme stocks—it has a lot more going for it than Reddit.
Wall Street is bullish on CLF
Wall Street analysts are bullish on CLF stock, with seven recommending “buy” and three recommending “hold,” reports MarketBeat. Their mean target price of $25.06 implies a 16 percent upside for the stock.
On Jul. 8, Argus Research initiated coverage of CLF with a “buy” rating and target price of $26. The analyst highlighted that the company has outperformed the market, has an attractive valuation, and is led by an experienced management team.
In Q1 2021, CLF reported EPS of $0.19, missing analysts’ expectation of $0.33. However, its top line of $4 billion beat their estimate of $3.9 billion.
Steel demand in U.S. remains strong
CLF, like other U.S. steel players, is a play on the country's booming steel demand. Citing this demand, Credit Suisse has made a strong case for CLF, as well as Nucor, Commercial Metals, Steel Dynamics, U.S. Steel Corporation, and Stelco.
CLF’s valuation multiple looks attractive
CLF's 2021 EV-to-EBITDA multiple is 3.5x, lower than its historical average. The better-than-average steel demand and the Biden administration’s accommodative fiscal policy and massive infrastructure focus are set to continue benefiting the company.
CLF’s HBI facility
Cleveland-Cliffs’ HBI (hot-briquetted iron) plant in Toledo, Ohio remains a good revenue opportunity and should add shareholder value in the medium-to-long term.
Trends supporting CLF
In the long term, steel demand is set to remain strong. In addition to the abovementioned factors, electric vehicles, which require more and higher-strength steel, could be another potent catalyst for steel demand.