2024-07-01 17:37:55 ET
Summary
- Despite recent underperformance, CLF remains undervalued with potential for margin expansion and growth in the steel industry.
- Analysts' concerns and downgrades may pose risks, but CLF's undervaluation and growth prospects make it a strong 'Buy' in the medium term.
- I believe CLF's EBITDA growth should continue due to a rebound in service center buyer demand and the continuation of cost reduction programs.
- My valuation calculations say that even if CLF misses the current 2025 EPS consensus by 5%, the stock will still be undervalued.
- I reiterate "Buy" for Cliffs stock again - keep calm and buy the dip (after performing your own due diligence only!).
My Thesis
I've been covering Cleveland-Cliffs Inc. ( CLF ) stock since June 2021, and all along I've been bullish on the stock for many reasons. The last time - in March 2024 - I argued that CLF had some reasons for margin expansion in the medium term, being driven by strong management (in my opinion) that prioritized buybacks and debt reduction. I advocated for buying the stock, which seemed undervalued in light of its superior projected growth rates in FY2025 and implied multiples that were well below those of its peer group. Since then, unfortunately, CLF has managed to significantly underperform the broad market, falling by ~22% amid the S&P 500 index's ( SPY ) ( SP500 ) return of 6.7%:
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Cleveland-Cliffs: Buy The Dip, Challenges Are Likely Temporary