CLF - Embedded Expectations Analysis - 2021 04 15
Cleveland-Cliffs Inc. (CLF:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.6x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about steel demand, their cost-competitiveness, and automotive industry production headwindsSpecifically, management may be exaggerating the cost-competitiveness of their natural gas-based Hot Briquetted Iron (HBI), the strength of their metallics business model, and their capacity to utilize hydrogen once it becomes commercially available. Moreover, management may be downplaying concerns about low-quality ArcelorMittal assets and they may lack confidence in their ability to address environmental concerns at their Dearborn location and secure new clients. They may also have concerns about the potential equipment modifications needed for natural gas replacement, the sustainability of steel demand, and production headwinds surrounding the automotive industry. In addition, they may lack confidence in their ability to sustain order growth and expand external pellet sales through the reopening of Great Lakes
Cleveland-Cliffs is an iron ore mining company. The company is a supplier of iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. The company is organized according to its differentiated products. The company has two segments: Mining and Pelletizing, which the company is a main producer of iron ore pellets, primarily selling production from its Mining and Pelletizing segment to integrated steel companies in the U.S. and Canada; and Metallics, which constructing a Hot Briquetted Iron (HBI) production plant, whereby HBI is an iron alternative to scrap that, when used as a feedstock, allows an Electric Arc Furnace to produces valuable grades of steel.
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