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Analysis of Cleveland-Cliffs Inc.

Analysis of Cleveland-Cliffs Inc.

23 March 2022

Cleveland-Cliffs is engaged in the production of steel in North America. In addition to producing various types of rolled products and pipes, Cleveland-Cliffs owns five iron ore mines in Minnesota and Michigan. The company supplies its products to such sectors as automotive, infrastructure and construction.

The company was founded in 1847 and is headquartered in Cleveland, Ohio.

At the end of September 2020, Cleveland-Cliffs bought 100% of ArcelorMittal USA shares. The perimeter of the transaction includes 6 steel mills, 8 enterprises for finishing products, 2 assets for the extraction of iron ore and the production of pellets, as well as 3 enterprises involved in coal mining and coke production. Even earlier, in March 2020, Cleveland-Cliffs closed a deal to purchase AK Steel, which provided the Cleveland-based company with an increase of 10 million tons of steel per year.

Cleveland-Cliffs ranked fifth in the North American hot-rolled steel market back in 2020, but in 2021 it became the leader, producing 15.9 tons of steel. Such a jump in production was reflected in the financial statements: revenue for 2021 was $20.4 billion compared to less than $10 billion for the previous three years combined. The 2019-2020 years were particularly unsuccessful, when the company received negative free cash flow.

Current multipliers:

P/E 4.8, forward P/E 4 (average current by competitors 27)

P/B 2.4 (industry average 1.6)

P/S 0.7 (industry average 1.3)

Debt $5.8 billion with current operating cash flow of $2.7 billion

There are no dividends

Stock Price: $28

The cash flow discounting model shows a fair price of $41.

Simply Wall Street estimates the company at $35.

4 analysts leading the company give an average estimate of $28.

Cleveland-Cliffs cancelled its dividend in April 2020 due to covid-related losses. But the payments will return this year with a high probability, since the company received a lot of cash for 2021. Over the past 5 months, insiders have bought shares 7 times.

The shares are trading above the 20, 50 and 200 day averages. This stock is twice as volatile as the market, so it makes sense to gain a position gradually, the lower the rate, the more shares to buy. The level of 26.55 and below looks good for purchases.

Conclusion: Cleveland-Cliffs is trading below the industry average in almost all indicators. Only the price/assets and debt/assets are above average. And this is despite the fact that the company is the leader of the area. An estimate of 4.8 annual profit allows us to count on an upside in the medium term.

23 March 2022
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