What’s Happening With Cleveland-Cliffs Stock?

Cleveland-Cliffs (NYSE:CLF), a vertically integrated steel mill operator, has seen its stock decline by 8% year-to-date. The sell-off comes as steel prices have softened a bit this year, amid easing supply chain issues and lower commodity price inflation following the Fed’s rate hikes over the past year. Moreover, the company’s Q1 2023 results were also somewhat weak, with revenue down by about 12% year-over-year to $5.3 billion with the company swinging to a loss. Investors have also been a bit concerned about the broader macro environment, which could impact steel demand. However, we do see a couple of bright spots for CLF stock.

Firstly, the company’s automotive business is likely to hold up well this year.  Cleveland-Cliffs has indicated that pricing on its fixed-price automotive contracts has trended higher, rising to about $1,415 per ton for 2023, up from about $1,300 in 2022.  Automotive production is also likely to pick up for a couple of reasons, helping the company. Dealer inventories for cars remain well below historical averages, standing at about 39 days, versus about 60 days pre-Covid, per IHS Markit.  Automotive production over the last year also remained about 13% below 2019 levels, providing room for recovery. On the demand side, a strong job market and pent-up demand following the automotive semiconductor crunch could help drive sales. This is likely to help CLF, given that the company derived about 36% of its Q1 directly from the automotive industry.

Besides tailwinds from the automotive space, CLF could also see input costs moderate a bit. Moreover, overall production is also expected to rise by roughly 8% to about 16 million tons in 2023. The company’s leverage is also quite manageable, with long-term debt declining a bit to $4.5 billion as of Q1, down from around $5.6 billion in early 2021. The debt load is likely to decline further, with the company indicating that it would use the bulk of its 2023 cash flow to reduce debt. Cliffs is better insulated from any geopolitical uncertainties compared to other steel makers, given its considerable vertical integration. The company also has no reliance on imported ferrous raw materials, unlike most of its U.S. rivals. We value CLF stock at about $21 per share, which is roughly 40% ahead of the current market price. See our analysis on Cleveland-Cliffs Valuation: Is CLF Stock Expensive Or Cheap? for more information on what’s driving our valuation for Cliffs. See our analysis of Cleveland-Cliffs Revenue for more details on the company’s key revenue streams and how they are expected to trend.

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[1] Month-to-date and year-to-date as of 5/24/2023
[2] Cumulative total returns since the end of 2016