On Tuesday, Seaport Global Securities shifted its stance on shares of Cleveland-Cliffs (NYSE:CLF), raising the stock's rating from Neutral to Buy. The firm has also established a new price target of $16.50 for the company's shares. The decision to upgrade the stock is based on a strategic evaluation of the current steel price cycle and the anticipated effects of the supply-side response.
Despite recent challenges in the steel industry, the analyst from Seaport Global Securities noted a positive outlook for Cleveland-Cliffs. The firm acknowledged the necessity to reduce its third-quarter 2024 EBITDA estimates for Cleveland-Cliffs due to the downward trend in steel prices. It is also expected that the consensus will likely revise its estimates downward in the upcoming weeks.
However, the analyst pointed out that there are positive developments on the horizon. A strong and disciplined response from the supply side is beginning to influence the market and is expected to become more apparent shortly. This response is anticipated to support steel prices and potentially boost sentiment in the sector, despite the current weak demand.
Industry conferences scheduled in the coming weeks are likely to highlight the impact of these supply-side adjustments. The discussions at these events could further underscore the potential for a stabilization or increase in steel prices, which would benefit Cleveland-Cliffs and the steel sector overall.
The new price target of $16.50 represents an adjustment in Seaport Global Securities' valuation of Cleveland-Cliffs stock. This target is set in the context of the evolving market dynamics and the firm's analysis of the steel price cycle and supply responses.
In other recent news, Cleveland-Cliffs, a North American steel producer, has seen an array of significant developments. The company recently announced the appointment of Michael Hrosik to Senior Vice President, Commercial and Michael Cooney as the Enterprise Director, Flat-Rolled Steel Sales.
On the financial front, Cleveland-Cliffs 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. The company also plans to offer an additional $500 million in Senior Guaranteed Notes due 2032.
In labor-related moves, Cleveland-Cliffs has secured a four-year labor contract with United Auto Workers Local 600 for its Dearborn Works operations, impacting approximately 1,000 employees.
Alongside these developments, the company reported a robust Q2 2024 performance, with an adjusted EBITDA of $323 million and a significant net debt reduction of $237 million. The company's focus on high-margin businesses, demonstrated by the upcoming acquisition of Stelco and the allocation of 35% of its free cash flow for share buybacks, is expected to enhance profit margins.
InvestingPro Insights
As Seaport Global Securities updates its valuation of Cleveland-Cliffs (NYSE:CLF) with a bullish outlook, it's worth noting a few strategic points from InvestingPro that may be of interest to investors. Despite a challenging environment in the steel industry, Cleveland-Cliffs has been recognized for its aggressive share buyback strategy (InvestingPro Tip #0), a move that often signals management's confidence in the company's future prospects. Additionally, the company has a high shareholder yield (InvestingPro Tip #1), which could attract investors looking for returns in the form of buybacks or other shareholder distributions.
From a data perspective, Cleveland-Cliffs is currently trading at a high earnings multiple with a P/E ratio of 156.63, which drops to a more moderate 39.4 when adjusted for the last twelve months as of Q2 2024 (InvestingPro Data). This suggests that while the stock may seem expensive on the surface, the adjusted earnings multiple indicates a more reasonable valuation. Furthermore, the company has shown significant returns over the last week with a price total return of 11.13% (InvestingPro Data), hinting at potential momentum in its stock price.
For those interested in a deeper analysis, InvestingPro offers additional tips, including insights on earnings revisions, free cash flow yield, and stock price volatility. In total, there are 13 additional InvestingPro Tips available for Cleveland-Cliffs, which can be accessed for a comprehensive investment analysis.
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