Cliffs Natural (CLF) Could See Upside, Even as Growth in China Slows - Barron's
Down)
Shares of Cliffs Natural Resources Inc (NYSE: CLF) are trading lower Monday despite a bullish article in Barron's over the weekend.
With infrastructures continuing to expand globally, requiring steel in the process, Cliffs should see upside as the number of producer of iron ore pellets in North America expands. Opponents have pointed to weakness in Europe as well as the slowing expansion in China's economy; Barron's points out even if China's growth does slow, that it would still be enough to increase demand for iron ore.
Though earnings expectations for $12.58 in 2011 drop to $12.43 in 2012, Barron's said EPS is expected to grow at about 13 percent per year over the next three to five years. Shares -- currently at $72.30 -- could move to $115 over the next 12 months, a 59 percent increase. The stock is also going for a forward P/E of 6 times next year's earnings expectations, low compared with the industry average of 11.5 times.
One key factor investors are eying includes backwardation, when front contracts carry a higher price over the next month. Lower prices for iron ore add to uncertainty for investors, at least in the near-term.
Barron's pointed out stronger economic data from China could quell some of those fears. An 8 percent increase in China's economic growth now would have the same effect on iron ore demand as a 10 percent increase just a few years ago.
But Cliffs is becoming more global as well. Last year, the Company acquired Consolidated Thompson mines in Canada with Wuhan Steel aimed at boosting sales in Asia. The company has operations in Australia and is in a Brazilian mining project.
At about $4 billion, debt is a little high. Most of that came from the nearly $5 billion acquisition of Consolidated Thompson. Shareholders' equity is at $5.7 billion, and its coal unit has been bleeding money.
With iron ore prices at $139, synergies with Consolidated Thompson expected to kick-in soon, and Cliffs saying it would exit the coal business if profit wasn't generated in the first-half of 2012. things for Cliffs are looking up. Further, the company pays out 28 cents per quarter for an annual yield of about 1.5 percent. That could climb as free cash flow improves and the company continues to deleverage.
Shares of Cliffs are down over 0.6 percent Monday.
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With infrastructures continuing to expand globally, requiring steel in the process, Cliffs should see upside as the number of producer of iron ore pellets in North America expands. Opponents have pointed to weakness in Europe as well as the slowing expansion in China's economy; Barron's points out even if China's growth does slow, that it would still be enough to increase demand for iron ore.
Though earnings expectations for $12.58 in 2011 drop to $12.43 in 2012, Barron's said EPS is expected to grow at about 13 percent per year over the next three to five years. Shares -- currently at $72.30 -- could move to $115 over the next 12 months, a 59 percent increase. The stock is also going for a forward P/E of 6 times next year's earnings expectations, low compared with the industry average of 11.5 times.
One key factor investors are eying includes backwardation, when front contracts carry a higher price over the next month. Lower prices for iron ore add to uncertainty for investors, at least in the near-term.
Barron's pointed out stronger economic data from China could quell some of those fears. An 8 percent increase in China's economic growth now would have the same effect on iron ore demand as a 10 percent increase just a few years ago.
But Cliffs is becoming more global as well. Last year, the Company acquired Consolidated Thompson mines in Canada with Wuhan Steel aimed at boosting sales in Asia. The company has operations in Australia and is in a Brazilian mining project.
At about $4 billion, debt is a little high. Most of that came from the nearly $5 billion acquisition of Consolidated Thompson. Shareholders' equity is at $5.7 billion, and its coal unit has been bleeding money.
With iron ore prices at $139, synergies with Consolidated Thompson expected to kick-in soon, and Cliffs saying it would exit the coal business if profit wasn't generated in the first-half of 2012. things for Cliffs are looking up. Further, the company pays out 28 cents per quarter for an annual yield of about 1.5 percent. That could climb as free cash flow improves and the company continues to deleverage.
Shares of Cliffs are down over 0.6 percent Monday.
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