Here’s Why We’re Raising Our Price Estimate For Cliffs To $10
Cliffs Natural Resources has benefited from an improvement in the iron ore pricing environment over the past few months. The following chart illustrates the extent of the recent recovery in iron ore prices.
Iron Ore Spot Prices, Source: Y Charts
Iron ore prices have benefited from an improved demand outlook from the U.S. and China in recent months. President Trump’s plans for a $1 trillion revamp of U.S. domestic infrastructure has translated into the firming up of the U.S. demand outlook for steel and iron ore going forward. [1] In addition, prices of iron ore have also benefited from a fiscal stimulus in China, the world’s largest consumer of the commodity. [2] As a result of the firming demand conditions, iron ore prices are expected to average higher this year as compared to the year recently ended.
In addition to benefiting from a favorable pricing environment, the company’s operations were also positively impacted by its cost reduction initiatives. The company’s U.S. and Asia Pacific iron ore operations reported year-over-year declines of 7% and 8%, respectively, in their cash cost of goods sold and operating expense rates in 2016. [3] With an improved pricing environment, lower cost operations will facilitate margin expansion for the company going forward.
As a result of these aforementioned changes in Cliffs’ business and operating conditions, we have suitably modified our forecasts for various drivers in our model for the company’s stock price, including realized prices and margins.
This has translated into our new $10.47 price estimate for the company, which is a reflection of the uptick in the company’s fortunes.
Have more questions about Cliffs Natural Resources? See the links below.
- What Is Cliffs Natural Resources’ Fundamental Value Based On 2015 Results?
- What Is Cliffs Natural Resources’ Revenue And EBITDA Breakdown?
- How Has Cliffs Natural Resources’ Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Did Cliffs Natural Resources’ Revenue & EBITDA Decline Over The Last 5 Years?
- By What Percentage Can Cliffs Natural Resources’ Revenue & EBITDA Change Over The Next 3 Years?
- How Will Cliffs Natural Resources’ Revenue Composition Change by 2020?
- How Do Cliffs Natural Resources’ Margins Compare With Those Of Iron Ore Mining Giants Such As Rio Tinto And Vale?
- Why ArcelorMittal Is The Most Important Customer For Cliffs’ U.S. Iron Ore Sales
- What’s New With Cleveland-Cliffs Stock?
- What’s Happening With Cleveland-Cliffs Stock?
- Why We Are Raising Our Price Estimate For Cleveland-Cliffs Despite A Weak Q4
- With Contracted Prices For 2023 Up, Is Cleveland-Cliffs Stock A Buy?
- Company Of The Day: Cleveland-Cliffs
- What To Expect From Cleveland-Cliffs Q3 Results?
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Notes:- U.S. governors prepare wish lists for Trump infrastructure promise, Reuters [↩]
- China’s stimulus-driven growth bolsters metal prices, Financial Times [↩]
- Cliffs Natural Resources 2016 10-K, SEC [↩]