Cleveland-Cliffs Faces Challenges Amid Steel Price Declines

Cleveland-Cliffs stock has plunged 50% this year, greatly underperforming the S&P 500. A report highlights ongoing adverse conditions in steel demand and significant challenges in the automotive sector, which may impact its stock recovery. While the company anticipates an EBITDA increase, concerns linger.

Date: 23-12-2024

AI Rating: 4

The report indicates several critical factors influencing Cleveland-Cliffs (CLF) stock performance. Notably, there has been a substantial decline in CLF's revenue, which fell by approximately 12% in the first nine months of the current year, totaling $14.86 billion. This downward trend is a primary driver of the stock's poor performance, contributing to a volatile stock price that has decreased significantly compared to its competitors.

Furthermore, the company's price-to-sales (PS) multiple illustrates a concerning decline from 0.6x in 2020 to 0.48x in 2023. Currently, the PS multiple stands at 0.3x, indicating that it may be undervalued relative to historical norms. Despite this potential upside, the reality of the current market sentiment remains bleak.

The report also forecasts CLF will incur a net loss of $0.52 per diluted share in the third quarter of 2024, attributed largely to discrete charges and losses, which underscores persistent operational challenges. The document mentions that weaker demand and pricing pressures have resulted in tighter profit margins. Even with the anticipated EBITDA increase of over $600 million in 2025, investors remain wary due to the broader challenges in the steel industry.

Moreover, Cleveland-Cliffs has experienced significant stock volatility over the last few years, with returns fluctuating considerably. The overall expectations are mixed as the company will have to navigate uncertainty in steel demand and pricing, especially with a significant reliance on the automotive sector, which is currently under pressure.

Overall, while there are potential indicators for improvement in valuation, such as the acquisition of Stelco Holdings Inc. which could boost margins and diversify operations, serious concerns about market position and profitability persist, further complicating investment decisions.

Stocks: CLF VALE MT X NUE