Should you buy the dive in Cleveland-Cliffs?
Shares of Cleveland-Cliffs Steel Company (CLF) have skyrocketed in recent months as steel prices have skyrocketed along with growing demand. However, its shares have fallen dramatically since it hit its highest level in 52 weeks at $ 26.51 on August 13, as China took action to curb steel production. So, can the stock rebound on the back of its strong financial data?
Cleveland-Cliffs Inc. (FCF) became the largest flat-rolled steel company and the largest producer of iron ore pellets in North America after acquiring AK Steel and ArcelorMittal USA last year. Thanks to soaring steel prices, shares of CLF have jumped 212% in the past year. The company also aims to achieve zero net debt by 2022, and its adjusted EBITDA is expected to be around $ 1.80 billion in the third quarter.
Additionally, the stock shot up to its 52-week high at $ 26.51 on August 13, on investor optimism over the infrastructure bill. However, it has lost 24% since reaching its 52-week high and 16.5% in the past month as China took action. limit steel production. Additionally, Speaker Nancy Pelosi suggested that the United States House of Representatives can’t vote on today’s $ 1 trillion bipartisan infrastructure bill. Thus, the short-term outlook for CLF appears uncertain.
Here is what could influence the performance of CLF in the coming months:
Strong financial data
CLF’s revenue jumped 361.6% year-on-year to $ 5.05 billion for the second quarter ended June 30, 2021. The company’s external sales volumes for steel products were high at 4,205 net tonnes, up 584.9% year-on-year.
Its net income was $ 780 million in the quarter, compared to a loss of $ 124 million in the previous year quarter. Its EPS stood at $ 1.33, down from a loss per share of $ 0.31 in the period last year. In addition, its adjusted EBITDA was $ 1.36 billion, down from a loss of $ 82 million in the prior year period.
Sell stocks to finance growth activities
CLF announced on February 8 that it was selling 60 million of its common shares, including 40 million currently outstanding common shares offered by ArcelorMittal North America Holdings LLC and 20 million of its common shares. The company intended to use the net proceeds to reduce debt. However, this should lead to a dilution of the shares.
Low profitability
In terms of gross profit margin over the past 12 months, CLF’s 15.96% is 47.4% lower than the industry average of 30.35%. Likewise, the share’s net profit margin over the last 12 months of 6.73% is lower than the industry average of 8.27%. In addition, its leverage over 12 rolling months FCF the margin is negative compared to the industry average of 7.89%.
POWR ratings don’t indicate enough upside
CLF has an overall score of C which equates to a Neutral in our POWR odds system. POWR scores are calculated taking into account 118 different factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight different categories. CLF has a C grade for the value. This is justified because his EV / S over the last 12 months of 1.30x is lower than the industry average of 1.71x. However, its 12-month P / B of 3.17x is 46.8% above the industry average 2.16x.
The stock has a D rating for Sentiment, in line with analysts’ expectations that CLF’s revenue and EPS will decline 8.6% and 37.5% year-on-year to $ 18.60 billion and 3.66 billion. dollars, respectively, in fiscal year 2022.
CLF has a D grade for quality, in line with its profitability ratios below those of the industry. Additionally, it has an F rating for stability, consistent with its beta of 2.19.
CLF is ranked # 25 out of 36 stocks in the D-rated Industrial – Metals industry. Also click on here to see additional POWR ratings for CLF (Growth and Momentum).
Final result
Operating 46 facilities, CLF serves customers in four market categories: automotive, infrastructure and manufacturing; distributors and converters; and steel producers. Analysts expect its revenue and EPS to increase in the next few quarters, but to decline significantly next year. Additionally, it is currently trading below its 50 and 200 day moving averages of $ 23.19 and $ 20.83 respectively, indicating that the stock is in a downtrend and may continue to lose at short term. So, it might be wise to wait for a better point of entry into the stock.
How does Cleveland-Cliffs (CLF) stack up against its peers?
While CLF has an overall POWR rating of C, you may want to consider taking a look at its industry peers with an A (strong buy) rating such as Ryerson Holding Corporation (RYI), Atkore Inc. (ATKR) and Norsk Hydro ASA (NHYDY).
Shares of CLF were trading at $ 20.03 a share on Thursday afternoon, up $ 0.11 (+ 0.55%). Year-to-date, the CLF has gained 37.57%, compared to a 16.80% increase for the benchmark S&P 500 over the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in economics in college and has a passion for writing, which led her to her career as a research analyst.
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