Citi has adjusted its outlook on shares of Cleveland-Cliffs (NYSE: NYSE:CLF), a major American mining and natural resources company.
The firm's analyst has lowered the price target to $12.50 from the previous $18.00 while maintaining a Neutral rating on the stock.
This revision comes amid expectations set for the company's third-quarter performance and the broader economic forecast for the coming years.
The revised price target by Citi reflects a more conservative estimate of Cleveland-Cliffs' future earnings before interest, taxes, depreciation, and amortization (EBITDA). For the third quarter of 2024, the firm anticipates an EBITDA of $155 million, which falls short of the FactSet consensus of $193 million and the second quarter's $323 million.
The projection is based on the assumption that the realized price will decrease by approximately $70 per ton, aligning with current spot prices and expected lags, while costs are predicted to drop by around $30 per ton as per the company's guidance.
The financial institution also forecasts that the upcoming earnings call will likely concentrate on several key topics including the implications of the Stelco deal or other mergers and acquisitions, automotive contracts, and the outlook for costs.
Looking further ahead, Citi has reduced its 2024 estimated EBITDA by 18% to $1.2 billion and its 2026 forecast by 25% to $1.4 billion. These adjustments are partly due to a recalibration of the mid-cycle EBITDA expectation from $2.0 billion to $1.6 billion.
In other recent news, Cleveland-Cliffs has been in the spotlight for significant developments. President Biden blocked the foreign acquisition of U.S. Steel by Nippon Steel, a move supported by Cleveland-Cliffs. The company has expressed readiness to acquire and invest in assets potentially affected by U.S. Steel's actions.
Seaport Global Securities upgraded Cleveland-Cliffs' stock rating from Neutral to Buy, setting a new price target at $16.50. Furthermore, Cleveland-Cliffs has made key appointments, with Michael Hrosik as Senior Vice President, Commercial, and Michael Cooney as the Enterprise Director, Flat-Rolled Steel Sales.
The company has issued an additional $600 million in senior guaranteed notes to partially fund the acquisition of Stelco Holdings Inc., expected to close in the fourth quarter of 2024. Cleveland-Cliffs also secured a four-year labor contract with United Auto Workers Local 600 for its Dearborn Works operations, impacting approximately 1,000 employees.
Cleveland-Cliffs reported a strong Q2 2024 performance, with an adjusted EBITDA of $323 million and a significant net debt reduction of $237 million.
InvestingPro Insights
As Cleveland-Cliffs (NYSE:CLF) navigates a challenging economic landscape, real-time data and expert analysis from InvestingPro offer additional context to Citi's revised outlook. According to InvestingPro, the company's market capitalization stands at $5.27 billion, and while the stock is trading at a high earnings multiple with a P/E ratio of 127.75, the adjusted P/E ratio for the last twelve months as of Q2 2024 is more moderate at 32.19. This suggests that, despite short-term volatility, the longer-term valuation may present a different picture.
InvestingPro Tips indicate that management's aggressive share buybacks and a high shareholder yield could be signs of confidence in the company's intrinsic value. Additionally, the Relative Strength Index (RSI) suggests that the stock is currently in oversold territory, potentially indicating a buying opportunity for contrarian investors. However, investors should be cautious as analysts have revised their earnings downwards for the upcoming period, and the company is expected to experience a drop in net income this year.
For those looking to delve deeper into Cleveland-Cliffs' financials and prospects, InvestingPro offers a range of additional tips, providing a comprehensive analysis of the company's performance and outlook. Interested readers can find more insights on Cleveland-Cliffs by visiting InvestingPro's dedicated page for the company, which currently lists over 10 additional tips for a thorough investment evaluation.
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