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Is Cleveland Cliffs a buy?

It’s time to break down a major steel company. Here is the break down of $CLF, otherwise known as Cleveland Cliffs.

Current Price: $20.62

52/Wk High: $24.77

52/Wk Low: $4.92

Market Cap: $10.3 Billion

Dividend: $0.06 / 1.13% Yield

Read below for the break down!

Cleveland Cliffs ($CLF) is the largest flat-rolled steel and iron ore pellet production company in North America and was founded in 1847. Since the company's inception, Cleveland Cliffs has been a leader within the iron ore mining industry in the United States.

Throughout the past few years, Cleveland Cliffs has been working to advance itself through the acquisitions of two major steel companies; AK Steel and ArcelorMittal.

The company completed the acquisition of AK Steel in March of 2020, acquiring 68%. Leadership was upbeat about the deal.

“By combining the best-in-class quality of AK Steel’s assets and its enviable product mix with Cliffs’ debt profile and proven management team, we are creating a premier North American company, self-sufficient in iron ore pellets and geared toward high value-added steel products,” CEO Lourenco Goncalves said.

Secondly, Cleveland Cliffs completed the acquisition of ArcelorMittal in December of 2020. ArcelorMittal is a steel manufacturing company that is headquartered in Luxembourg City.

Leadership was positive about the acquisition.

“The assets we have acquired will be combined with our existing footprint, including AK Steel, Precision Partners, AK Tube, several mining and pelletizing facilities, our Research & Development Center, and the most modern Direct Reduction plant in the world, which we have just started to operate in Toledo, OH.” Goncalves said.

Cleveland Cliffs is led by CEO and President Lourenco Goncalves, who became CEO in 2014. The leadership team is made up of executives with prior experience from the likes of Metals USA, Seaborne Iron Ore, Barrick Gold Corporation, and more.

Digging into the numbers, Cleveland Cliffs missed Q1 2021 expectations with an EPS of $0.07, just under the analyst’s EPS consensus estimate of $0.33. On a year-over-year basis, EPS improved by 136.84%.

On the revenues front, the company reported $4.049 billion in revenues, representing a significant improvement over the much lower $359 million in Q1 of 2020.

Cleveland Cliffs also reported record net income, with Q1 net income totaling $41 million even though the company suffered $160 million in charges. The charges consisted of inventory step-ups, debt extinguishment costs, and acquisition costs.

Furthermore, the Q1 adjusted EBITDA totaled $513 million, representing a huge jump over the Q1 2020 adjusted EBITDA level of $23 million.

Breaking down adjusted EBITDA, the Steelmaking segment turned out $537 million in adjusted EBITDA, representing a sizable increase over the $44 million in Q1 2020.

The Other Businesses segment delivered $11 million in EBITDA, representing a large jump over the slim $2 million in 2020.

Lastly, the Corporate and Eliminates segment delivered a negative adjusted EBITDA of $-35 million, representing a decline from the same time 2020 level of $-23 million.

Operating income improved as well, jumping from a loss of $79 million to a net operating income gain of $177 million.

Looking to the future, Cleveland Cliffs recently increased Q2 guidance and FY 2021 expectations. Management now expects Q2 2021 EBITDA to total $1.3 billion and FY 2021 adjusted EBITDA to land around $5 billion, both significantly higher than prior guidance.

Shifting into the balance sheet the numbers are solid.

Total Debt: $5.734 Billion

Total Liabilities: $14.088 Billion

Total Assets: $17.215 Billion

Cash & Short Term Inv: $110 Million

On a valuation basis, Cleveland Cliffs trades at a minimal premium.

Forward Price to Earnings: 8.73x

Price to Sales: 1.17x

Price to Book: 4.23x

Price to Cash Flow: 6.21x

Management could be more effective.

Return on Assets: 0.19%

Return on Equity: -1.78%

Return on Invested Capital: 0.23%

Given the numbers the analysts are bullish with a mean price target of $28.65/share, representing a 38.94% gain.

The high price target is $39.00/share, representing an 89.14% upside, while the low price target is $19.20/share, representing a -6.89% downside.

The big money is quite involved with 63.74% of Cleveland Cliffs being owned by institutions. Top holders include BlackRock Institutional Trust, The Vanguard Group, and Fidelity Management & Research.

On a technical basis, Cleveland Cliffs could be presenting opportunity. According to the six-month charts the MACD is moving with downside momentum within a range of 0.5376 down to 0.3443.

The six-month charts are also indicating an RSI of 48.69 and CCI of -28.3058, both of which are on the lower end.

In short, Cleveland Cliffs ($CLF) is a strong iron and steel company with a solid management team, improving earnings, consistent demand, solid balance sheet, and a recovering economy to function within.


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.

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