Cleveland-Cliffs Shares Have Further Upside Potential

Cleveland-Cliffs shares

Cleveland-Cliffs Inc. (NYSE:CLF): Cleveland-Cliffs shares are increasing steadily after its substantial jump in response to the U.S. announcement regarding tariffs on imported steel and other metals. CLF is a U.S. based iron ore supplier to domestic producers.

Cleveland-Cliffs Shares are Up, Analysts are Optimistic

Cleveland-Cliffs shares are up 22% in the last three months thanks to higher iron ore prices and increasing demand from the U.S. steel industry. Market analysts are showing optimism in future fundamentals of the iron ore supplier.

Cleveland-Cliffs shares
Source: finviz.com

Citi Group, for instance, issued a ‘Buy’ rating for Cleveland-Cliffs shares with the price target of $11, significantly higher from its current price of $8 a share, citing “the company’s ‘significant logistical, quality and cost advantages’ in providing high quality iron units to steel mills in an improved domestic market.”

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Higher Guidance Supports Analysts’ Claim

Cleveland-Cliffs have been experiencing positive impact of higher tariffs on imported metals. The company has increased its guidance for iron ore pellet prices to $102-$107/ton compared to the earlier guidance of $97-$102/ton, assuming that steel prices, iron ore prices, and pellet premiums will remain in line with YTD averages.

On the other hand, Cliffs’ low costs compared to iron ore prices shows that the company is in a position to generate substantial profits. Its FY2018 Iron Ore cash cost of goods sold and operating expense are likely to stand around $58 – $63 per long ton.

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The strength in the domestic steel market we have seen so far this year is sustainable, and should support very strong results for Cleveland-Cliffs in 2018,” says CEO Lourenco Goncalves, adding that the company expects “significantly increased” EBITDA and cash flow this year.

Cleveland-Cliffs expects to generate a full-year sales volume in the range of 20.5 million long tons of pellets, higher than the 500,000 long tons from the same period last year. The management of Cleveland-Cliffs anticipates substantial growth in its EBITDA and cash flows in fiscal 2018, buoyed by higher prices and lower costs.

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