Why is Cleveland-Cliffs Stock Down 50% This Year?

Cleveland-Cliffs (NYSE:CLF), a vertically integrated steel mill operator, has seen its stock decline by 50% since the beginning of the year as compared to the 28% gain in the S&P 500 Index. Cleveland-Cliffs downward stock price movement is much sharper compared to that for its peers, including VALE (NYSE: VALE) which is down 42% year to date, ArcelorMittal (NYSE:MT) which is down 13% year to date, United States Steel Corporation (NYSE:X) down 31% year to date, and Nucor Corp (NYSE: NUE) which is down 30% year to date. This fall has been primarily due to the adverse business conditions that the industry is going through.

Steel prices in the U.S. have witnessed a declining trend due to subdued demand in the domestic market with weak manufacturing activities. Globally, demand in the sector remains subdued due to oversupplies in the European market as well as high inventory levels in China. Cleveland Cliffs has a high exposure to the automotive sector, which continues to face challenges, leading to the company being more impacted than its competitors. We value CLF stock at about $14.50 per share, which is roughly 47% ahead of the current market price. At the current price of around $10 per share we believe CLF stock has room for improvement.  Notably, the stock has moved down 70% from levels seen in March 2022. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Factors that drove changes in Cleveland-Cliffs stock 

Some of the decline of the last few years is justified by the roughly 4% drop seen in CLF’s revenues from 2022 to 2023. Revenue declined by around 12% in the first nine months of the current year to $14.86 billion.

Cleveland-Cliffs witnessed a revenue growth from 2021 to 2022 which has since then been on a declining trend, its PS multiple has also seen a drop. The company’s PS multiple changed from 0.6x in 2020 to 0.48x in 2023. While the company ‘s PS is now 0.3x there is a potential upside when the current PS is compared to levels seen in the past years. 

The decrease in CLF stock over the last 3-year period has been far from consistent, with annual returns being more volatile than the S&P 500. Returns for the stock were 50% in 2021, -26% in 2022, and 27% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is much less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could CLF face a similar situation as it did in 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

What to expect from Cleveland-Cliffs stock

Third-quarter 2024 revenues were $4.6 billion, compared to $5.1 billion in the second quarter of 2024, and the company recorded a net loss of $0.52 per diluted share. The loss was primarily on account of discrete charges and losses totaling $145 million, primarily related to an arbitration decision and acquisition-related expenses. Weaker demand and pricing drove tighter margins, though the company achieved its lowest unit cost since 2021.

For the coming year 2025,  the company expects to increase its EBITDA by over $600 million. It is also expected that steel demand will rebound in early 2025, supported by a number of economic and political factors. In addition, CLF has acquired Stelco Holdings Inc. in the fourth quarter of 2024. This acquisition shall help to increase CLF’s flat rolled products footprint, increase geographical diversification, while adding to its margins. Stelco’s portfolio of business is very different from CLF, with virtually no exposure to the automotive sector. 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.

[1] Returns as of 12/17/2024
[2] Cumulative total returns since the end of 2016

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