CLF - Embedded Expectations Analysis - 2021 08 17
Cleveland-Cliffs Inc. (CLF:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 9.3x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about their free cash flow position, debt reduction, and soft automotive demand.Specifically, management may lack confidence in their ability to achieve their net debt target by 2022, sustain their free cash flow, and pay down their asset-based lending agreements (ABL). Furthermore, they may have concerns about automotive demand, the potential of their capital allocation initiatives, and emission reduction issues regarding blast furnaces. Moreover, management may lack confidence in their ability to continue to divert automotive volumes to spot buyers and fully fund their pension obligations. Finally, they may be exaggerating the macroeconomic tailwinds for the steel industry, and they may also have concerns about a potential rapid deterioration of steel prices.
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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