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Cleveland-Cliffs (CLF) Stock: Buy or Sell Before Q2 Earnings?
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Cleveland-Cliffs Inc. (CLF - Free Report) is slated to release second-quarter 2024 results after the closing bell on Jul 22. While CLF is expected to have benefited from lower steelmaking unit costs and healthy overall volumes, lower steel prices are likely to have weighed on its performance.
The Zacks Consensus Estimate for second-quarter 2024 earnings has been revised 100% downward in the past 60 days. The consensus estimate suggests break-even earnings per share. The Zacks Consensus Estimate for revenues is currently pegged at $5.24 billion, indicating a 12.5% decline from the year-ago quarter.
Image Source: Zacks Investment Research
The company beat the Zacks Consensus Estimate for earnings in two of the last four quarters while missing once and posting in-line results on the other occasion. It has a trailing four-quarter earnings surprise of roughly 11.5% on average.
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for CLF this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Cleveland-Cliffs has an Earnings ESP of -200.00% and a Zacks Rank #4 (Sell).
CLF is expected to have faced headwinds from a significant downward correction in U.S. steel prices in the June quarter. The benchmark hot-rolled coil (HRC) prices have seen a sharp decline since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. A combination of factors has led to the downward slide, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties. U.S. HRC prices remained under pressure in the second quarter, and are currently hovering below the $700 per short ton level.
Weaker selling prices are likely to have impacted the company’s performance in the quarter to be reported. Our estimate for the average net selling price per net ton of steel products is $1,135, indicating a 3.4% sequential decrease.
Nevertheless, the company is likely to have witnessed higher sales volumes in the second quarter. Healthy overall demand in its end markets, especially in automotive on the back of an uptick in vehicle production, is likely to have supported its total volumes. Our estimate for external sales volumes for steel products stands at 4.14 million net tons, suggesting a 5% sequential rise.
Cleveland-Cliffs is also expected to have benefited from actions to lower steelmaking unit costs in the quarter to be reported. CLF sees a $20 per ton sequential decline in unit costs aided by lower-cost coal contracts.
Price Performance and Valuation
CLF’s price performance has been dismal this year, partly reflecting the broader industry challenges triggered by a slump in steel prices. Its shares have lost 22% year to date, underperforming the industry’s 6.5% decline and the S&P 500’s rise of 17%. The stock has also underperformed its major U.S. steel-making peers year to date, with a 12.4% gain for Steel Dynamics, Inc. (STLD - Free Report) , and a 4.5% and 21.5% decline for Nucor Corporation (NUE - Free Report) and United States Steel Corporation (X - Free Report) , respectively.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Cleveland-Cliffs is currently trading at a forward 12-month earnings multiple of 16X, a roughly 22.7% premium to the peer group average of 13.04X, and considerably higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
Image Source: Zacks Investment Research
Investment Thesis
Cleveland-Cliffs benefits from its vertically integrated footprint, which provides it with a competitive advantage in supplying automotive and other steel end markets. As a leading supplier of automotive-grade steel in the United States, CLF’s automotive steel business remains the fulcrum of its primary competitive strength. CLF is leveraging the ability to source its steelmaking feedstocks domestically and internally at a stable cost. Its cost-cutting initiatives, leading to reduced steel-making expenses, also provide margin benefits.
However, Cleveland-Cliffs is hamstrung by the underlying challenges in the steel industry, as reflected by the significant retreat in U.S. steel prices driven by a combination of demand slowdown and oversupply, which have triggered a downward revision in its earnings estimates. Tumbling steel prices have largely contributed to the downward slide in the CLF stock and are expected to remain an overhang over the near term.
Conclusion
While Cleveland-Cliffs benefits from its competitive strength and cost-saving actions, it is exposed to the choppiness in the steel space. Slumping steel prices cast a pall on the company's prospects. Its stretched valuation also might not offer an attractive entry point at this time. It is prudent to avoid CLF stock until the company demonstrates substantial improvement in its financial performance in its forthcoming release.
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Cleveland-Cliffs (CLF) Stock: Buy or Sell Before Q2 Earnings?
Cleveland-Cliffs Inc. (CLF - Free Report) is slated to release second-quarter 2024 results after the closing bell on Jul 22. While CLF is expected to have benefited from lower steelmaking unit costs and healthy overall volumes, lower steel prices are likely to have weighed on its performance.
The Zacks Consensus Estimate for second-quarter 2024 earnings has been revised 100% downward in the past 60 days. The consensus estimate suggests break-even earnings per share. The Zacks Consensus Estimate for revenues is currently pegged at $5.24 billion, indicating a 12.5% decline from the year-ago quarter.
The company beat the Zacks Consensus Estimate for earnings in two of the last four quarters while missing once and posting in-line results on the other occasion. It has a trailing four-quarter earnings surprise of roughly 11.5% on average.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for CLF this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Cleveland-Cliffs has an Earnings ESP of -200.00% and a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Q2 Results
CLF is expected to have faced headwinds from a significant downward correction in U.S. steel prices in the June quarter. The benchmark hot-rolled coil (HRC) prices have seen a sharp decline since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. A combination of factors has led to the downward slide, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties. U.S. HRC prices remained under pressure in the second quarter, and are currently hovering below the $700 per short ton level.
Weaker selling prices are likely to have impacted the company’s performance in the quarter to be reported. Our estimate for the average net selling price per net ton of steel products is $1,135, indicating a 3.4% sequential decrease.
Nevertheless, the company is likely to have witnessed higher sales volumes in the second quarter. Healthy overall demand in its end markets, especially in automotive on the back of an uptick in vehicle production, is likely to have supported its total volumes. Our estimate for external sales volumes for steel products stands at 4.14 million net tons, suggesting a 5% sequential rise.
Cleveland-Cliffs is also expected to have benefited from actions to lower steelmaking unit costs in the quarter to be reported. CLF sees a $20 per ton sequential decline in unit costs aided by lower-cost coal contracts.
Price Performance and Valuation
CLF’s price performance has been dismal this year, partly reflecting the broader industry challenges triggered by a slump in steel prices. Its shares have lost 22% year to date, underperforming the industry’s 6.5% decline and the S&P 500’s rise of 17%. The stock has also underperformed its major U.S. steel-making peers year to date, with a 12.4% gain for Steel Dynamics, Inc. (STLD - Free Report) , and a 4.5% and 21.5% decline for Nucor Corporation (NUE - Free Report) and United States Steel Corporation (X - Free Report) , respectively.
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Cleveland-Cliffs is currently trading at a forward 12-month earnings multiple of 16X, a roughly 22.7% premium to the peer group average of 13.04X, and considerably higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
Investment Thesis
Cleveland-Cliffs benefits from its vertically integrated footprint, which provides it with a competitive advantage in supplying automotive and other steel end markets. As a leading supplier of automotive-grade steel in the United States, CLF’s automotive steel business remains the fulcrum of its primary competitive strength. CLF is leveraging the ability to source its steelmaking feedstocks domestically and internally at a stable cost. Its cost-cutting initiatives, leading to reduced steel-making expenses, also provide margin benefits.
However, Cleveland-Cliffs is hamstrung by the underlying challenges in the steel industry, as reflected by the significant retreat in U.S. steel prices driven by a combination of demand slowdown and oversupply, which have triggered a downward revision in its earnings estimates. Tumbling steel prices have largely contributed to the downward slide in the CLF stock and are expected to remain an overhang over the near term.
Conclusion
While Cleveland-Cliffs benefits from its competitive strength and cost-saving actions, it is exposed to the choppiness in the steel space. Slumping steel prices cast a pall on the company's prospects. Its stretched valuation also might not offer an attractive entry point at this time. It is prudent to avoid CLF stock until the company demonstrates substantial improvement in its financial performance in its forthcoming release.