On Friday, JPMorgan (NYSE:JPM) reinstated coverage on Cleveland-Cliffs Inc. (NYSE:CLF), a major player in the iron ore mining industry, assigning an Overweight rating to the company's stock with a price target of $23.00. This represents an upgrade from the previous Neutral rating and an increase in the price target from $19.00, which was set before the coverage was paused.
The firm's decision to resume coverage with a more favorable outlook is based on the anticipation that Cleveland-Cliffs will generate significant cash flow in 2024. This expectation is underpinned by a forecast of reduced cost pressures and minimal capital expenditure requirements, which should allow the company to concentrate on enhancing shareholder returns and further reducing debt.
The analyst from JPMorgan anticipates that the automotive sector, which is Cleveland-Cliffs' largest end market, will exhibit robust demand. This projection follows the conclusion of the United Auto Workers (UAW) strike and the ongoing need to replenish automotive inventories, which have not yet returned to full levels.
Moreover, the firm notes that recent mergers and acquisitions activity within the steel industry, particularly involving peer company US Steel, has provided a foundation for a potential revaluation of the sector. This could lead to a broader industry rerating, offering additional support for Cleveland-Cliffs' stock valuation.
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