On Wednesday, Cleveland-Cliffs Inc. (NYSE:CLF) experienced a shift in its stock rating as Citi moved its recommendation from Buy to Neutral. The adjustment comes despite the firm's strong revenue performance, which was bolstered by robust volumes, record auto steel prices, and resilient hot-rolled coil (HRC) steel prices.
Citi has maintained its price target for Cleveland-Cliffs at $22.00, noting that while the company's revenues have met or exceeded expectations, increased costs have resulted in less impressive EBITDA figures. The analyst from Citi pointed out that the EBITDA for 2023 was less than $2 billion, which was considered underwhelming given the circumstances.
The revised mid-cycle EBITDA estimate stands at approximately $2 billion, with the implied free cash flow (FCF) around 7%. While acknowledging the fairness of these figures, Citi's analysis suggests that they do not present a compelling case for investors at this time.
Cleveland-Cliffs has been navigating an industry environment characterized by fluctuating costs and prices. Despite the challenges, the company has managed to maintain strong sales due to the high demand for steel in the automotive sector and the overall market resilience of HRC.
Investors in Cleveland-Cliffs will likely monitor the company's future performance closely, especially in terms of cost management and its ability to sustain profitability in a dynamic market. The unchanged price target of $22.00 reflects Citi's current valuation of the company's stock amidst these considerations.
InvestingPro Insights
Following the recent change in stock rating for Cleveland-Cliffs Inc. by Citi, InvestingPro provides additional insights that may be of interest to investors. According to InvestingPro data, Cleveland-Cliffs has a market capitalization of approximately $10.2 billion and is trading near its 52-week high, with a price that is 95.34% of this peak. The company's P/E ratio, a measure of the stock's valuation, stands at 26.09, which adjusts to a slightly lower 22.6 when looking at the last twelve months as of Q4 2023.
InvestingPro Tips highlight that Cleveland-Cliffs has been aggressively buying back shares, which can be a signal of management's confidence in the company's future prospects. Additionally, the company has a high shareholder yield, which combines dividend payments and share buybacks, providing investors with a return on their investment even though the company does not pay a dividend. These factors, along with a valuation that implies a strong free cash flow yield, suggest that Cleveland-Cliffs may be an attractive option for investors looking for cash-generative businesses in the Metals & Mining industry.
Investors considering Cleveland-Cliffs should note that while the company has shown a large price uptick over the last six months, with a 45.07% total return, it also suffers from weak gross profit margins of 6.32%. This indicates that despite robust revenue growth, there is pressure on profitability that could impact future performance. For those interested in exploring further, there are additional InvestingPro Tips available, which may provide a deeper understanding of the company's financial health and market position. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for more detailed analysis and tips.
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