Cleveland-Cliffs stock , a vertically integrated steel mill operator, is slated to publish its Q3 2022 results on October 25, reporting on a quarter that saw benchmark steel prices trend lower due to mounting economic headwinds. We expect Cleveland-Cliffs revenue to come in at about $5.75 billion for the quarter, slightly below the consensus estimates of $5.82 billion, and down about 4% versus the last year. We project that earnings will stand at $0.54 per share, marginally below consensus estimates of $0.55 per share. So what are some of the trends that are likely to drive Cliff’s results? See our interactive dashboard analysis on Cleveland-Cliffs Earnings Preview for more details on how Cliff’s revenues and earnings are likely to trend for the quarter.
Cleveland-Cliffs’ performance has been pretty strong in recent quarters. For the first six months of 2022, Cleveland-Cliffs Revenue rose 35% year-over-year to $12.3 billion, while adjusted EBITDA was up 38%. The results were driven by higher steel price realizations following the Russian invasion of Ukraine which hurt the global steel supply, given that both countries are key players in the global steel value chain. CLF realized about $1,487 per ton of steel over the first six months of 2022, up almost 44% versus last year. However, we expect realizations to decline in Q3, as benchmark steel prices have trended lower due to growing concerns about the global economy and rising interest rates. China, the world’s largest steel consumer, is also facing headwinds in its construction sector leading to lower demand. That said, some of the weakness in steel pricing could be offset by higher demand from the automotive sector in the U.S., with major manufacturers such as GM seeing vehicle delivery volumes pick up as the semiconductor shortage eases. However, Cliff’s earnings for the quarter could be impacted to an extent by high prices for natural gas, electricity, and other inputs.
So is CLF stock good value at current levels of about $15 per share? CLF stock presently trades at a relatively low 4x consensus 2022 earnings. While cyclical stocks usually have low multiples around a cyclical peak, we think that Cliffs is better positioned compared to many other steel producers in the currently weak macro environment. The company has a higher exposure to value-added products for the automotive industry and we think that this business could hold up a bit better, as automotive volumes are already depressed versus 2019 levels meaning that a downside could be less severe. Separately, Cliffs is also better insulated from input cost pressures and geopolitical uncertainties compared to other steel markets, given its considerable vertical integration. The company’s leverage is also quite manageable, with debt standing at just about $4.5 billion during the most recent quarter. We value CLF stock at about $21 per share, which is about 38% ahead of the current market price. See our analysis on Cleveland-Cliffs Valuation: Is CLF Stock Expensive Or Cheap? for more details.
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 Cumulative total returns since the end of 2016