Cleveland-Cliffs inc.

CLF Details

Cleveland-Cliffs inc. (NYSE: CLF) is a North America based producer of flat-rolled steel and iron-ore pellets. The enterprise is vertically integrated from mined raw materials and direct reduced iron to primary steelmaking and downstream finishing, stamping, tooling, and tubing. CLF acquired AK Steel and ArcelorMittal USA in FY20, vertically integrating its iron ore business with high-quality steel manufacturing and focusing on the automotive end market.

FY21 Results:

• Surge in Topline: The company reported YoY growth of 281.85% in total revenue to USD 20.44 billion in FY21 (ended December 31, 2021) compared to USD 5.35 billion in FY20. The Steelmaking segment, representing 97.34% of the total revenue in FY21, improved 300.83% YoY, whereas the Other Businesses segment declined by 39.59% YoY.
• Expansion of Net income: CLF reported a net income of USD 2.99 billion in FY21 vs. a net loss of USD 122 million in FY20.
• Cash and Debt Position: As of December 31, 2021, the company had cash & cash equivalents of USD 48 million and total debt of USD 5.34 billion.

Key Risk:

• Regulatory Risk: CLF is a metal mining firm subject to various federal and state regulations. As a result, stricter standards or non-compliance with necessary legislation may harm the company's profitability.
• Market Concentration Risk: In FY21, the Automotive segment in North America accounted for majority of the CLF’s steel products. Hence, any unfavorable impact on the automotive market could harm its financials.

Outlook:

• FY22 Guidance: As of FY21, CLF expects its FY22 average selling price of ~USD 1,225 per net ton.

Valuation Methodology: Price/Cash Flow Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

CLF's stock price has fallen 16.96% in the past six months and is currently trading close to the mid-band of its 52-week range of USD 12.77 to USD 26.51. We have valued the stock using the Price/Cash Flow-based relative valuation methodology and arrived at a target price of USD 23.77.

Considering the correction in the stock price, strong top and bottom-line performance, positive outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 19.09, down 0.47% as of February 18, 2022.

Three-Year Technical Price Chart (as on February 18, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

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