Cleveland-Cliffs Stock Is Dropping After Earnings. It’s Cheap — but Scary.

Text size

Prices of hot-rolled steel coil, a benchmark for the market, have dropped to $1,135 a ton from $1,900 at the end of the third quarter.

Ina Fassbender/AFP via Getty Images

Cleveland-Cliffs

stock is falling after its fourth-quarter earnings disappointed the market. Shares of the steelmaker are inexpensive, but investors fear falling profits—and sliding prices for the metal.

Cliffs (ticker: CLF) stock was down 3.1% on Friday morning. The

S&P 500
and

Dow Jones Industrial Average
were up 0.1%% and 0.3%, respectively.

For the fourth quarter, the company reported $1.69 in per-share profits, with $1.5 billion in earnings before interest, taxes, depreciation, and amortization, from $5.3 billion in sales. Wall Street was looking for $2.11 a share, $1.7 billion in Ebitda, and $5.7 billion in sales, according to FactSet.

Steel sales “volumes were weaker than we had modeled at 3.4” million tons, wrote Citigroup analyst Alexander Hacking in a report reacting to the earnings news. That is down 19% compared with the third quarter, according to the analyst. Cliffs “has more exposure to autos and potentially more commitment to supply discipline,” Hacking said.

Auto production has been constrained due to a lack of semiconductors. That might have affected demand for Cliffs’ steel. The remark about commitment to supply discipline refers to not piling more steel into an oversupplied market.

Steel prices are falling hard. Prices for hot-rolled coil, a key benchmark, are at about $1,135 a ton, down from $1,900 a ton at the end of the third quarter.

The slump is a big reason Cliffs stock trades for less than four times estimated 2022 earnings per share. That isn’t a big multiple; it may indicate that investors expect earnings estimates to drop as steel prices decline.

The company hosts a…

..

Read More

Recommended For You

Leave a Reply

Your email address will not be published.