Price Target for Cleveland-Cliffs as CEO Projects 'Dramatic Rebound' for Steel
With the U.S. steel industry facing some open questions about tariff impacts, this name has some trade potential.
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Cleveland-Cliffs stock CLF has been a disaster.
The industry has been mired in a tough spot for years. There has been some recent tariff-related support. That said, a study released last week by RBC Capital Markets showed that the original set of tariffs aimed at improving conditions for U.S. steel and aluminum producers only had the effect of increasing domestic production of those two refined metals by 7% and 4%, respectively. Additionally, U.S. consumption of these metals (from both domestic and imported sources) has decreased a rough 10% since 2018.
Not a great business, unless economic growth suddenly takes off. That's not likely to happen until all of the fiscal largess built up over several years has been weeded out, which will take some time. Still, organic, not artificially- (federally) created economic growth is out there. With the help of lower corporate and household income taxes on top of reduced regulations, that growth is or will be out there.
This industry happens to be one where increased tariffs, if sustained, could improve not just business conditions for firms such as Cleveland-Cliffs, but also for the middle-class job creation that U.S.-based industries would be capable of.
Cleveland-Cliffs Stock Fundamentals
Cleveland-Cliffs reported the firm's fourth quarter performance nearly a month ago. It wasn't pretty. The firm posted an adjusted EPS of $-0.68 on revenue of $4.3 billion. These top- and adjusted bottom-line numbers both fell short of Wall Street's expectations. The top-line print was "good enough" for a year-over-year contraction of 15.9%.
However, at the time, CEO Lourenco Goncalves said that he expected a "dramatic rebound" for the entire U.S. steel industry in 2025. Goncalves added, "We can already see the early signs of this rebound in automotive pull, index pricing, and our overall order book."
Do I trust him? I trust my wife, my parents and my sons. That's about it. Still, this is better than being told that the company is about to go over Niagara Falls in a barrel.
Other than that, free cash flow was positive for the fourth quarter, but negative for the full year. The firm had $54 million in cash on the balance sheet as of December and $5.094 billion in inventories. Short-term debt ran at just $29 million, which is manageable, but long-term debt is a potential behemoth at $7.065 billion. The firm's current ratio is fine, but the quick ratio is close to scary. All that said, I like the chart right now...
The Cleveland-Cliffs Stock Chart
Readers will see a stock in steady decline for a year that, until a couple of days ago, actually did trade below $10 per share. The stock closed on Friday at $10.39, up 6.8% for the day, but up 5.9% for the week in its entirety. Toward the lower right-hand side of the range, the stock has formed a double-bottom pattern of bullish reversal.
Relative strength (above the chart) is improving. The daily MACD, though still far from impressive, is showing some signs of life. Most importantly though, the stock is trying to take (and hold) its 50-day SMA and its 21-day EMA simultaneously.
This could produce the double positive of getting both portfolio managers and swing traders more involved on the long side. I am not sure if this is an investment. I do think this may be a trade in the making. Additionally, a rough 14% of the float is held in short positions.
Cleveland-Cliffs (CLF)
Target Price: $13
Pivot: 50-day SMA (currently $10.30)
Panic: loss of 8% after entry.
Note: A second pivot comes into play at $12.20 thanks to the double-bottom pattern. That pivot is a ways off but could produce a secondary target up around $15.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
