Guilfoyle: The case for Cleveland-Cliffs

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Cleveland-Cliffs  (CLF) - Get Cleveland-Cliffs Inc Report, the flat-rolled alloy producer, went done a unsmooth period erstwhile shares fell 29% from August to September. Its aboriginal is present looking brighter arsenic much maturation is anticipated, argues Real Money’s Stephen “Sarge” Guilfoyle.

The institution said connected Oct. 11 it plans to bargain Ferrous Processing and Trading, a ample processor and distributor of ferrous scrap metallic that focuses its operations successful Ohio and Michigan. The acquisition’s endeavor worth is astir $775 million.

Ferrous Processing and Trading processes astir 3 cardinal tons of scrap annually and 50% of that is premier grade. The institution produced astir $100 cardinal successful EBITDA implicit the 12 months ended Aug. 31.

Cleveland-Cliffs CEO Lourenco Goncalves said that premier scrap volition go much scarce successful the future.

Another promising origin is that robust ore prices and rebar prices person been expanding successful China.

Investing successful Cleveland-Cliffs could beryllium to beryllium profitable, Guilfoyle wrote successful a caller Real Money Pro column. “I deliberation that CLF tin conscionable each of its abbreviated to medium-term obligations, and that should beryllium our (my) model arsenic an investor,” helium wrote.

In its precocious summertime plunge, the banal besides underperformed erstwhile compared to rival Nucor   (NUE) - Get Nucor Corporation Report , disconnected 27.5%, the Dow Jones US Steel Index, disconnected 24.7% and the broader Materials Select Sector SPDR ETF XLB off 9.5%.

“Sure, the Chinese motor is sputtering, astatine slightest partially owed to shifting priorities successful Beijing,” Guilfoyle wrote. “That said, request for materials, ferrous and nonferrous metals alike lone finds enactment should Congress get squared distant and walk authorities astir a larger spending bundle that hopefully includes a important infrastructure build/rebuild.”

Analysts judge the institution has much maturation imaginable and the existent statement estimation is EPS of $2.23 successful the existent quarter, vs. a nonaccomplishment of $0.03 per stock a twelvemonth agone based connected gross of $5.69 billion. That would mean a gross summation of 245%. Compared to the 3rd 4th of 2019, pre-pandemic, gross maturation would beryllium 925%!

The downside is that Cleveland-Cliffs has respective hurdles -- its nett currency presumption is declining, their indebtedness load is “enormous” and escaped currency travel is negative, Guilfoyle wrote.

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