Credit Suisse Warns of Possible Short Squeeze in Cliffs Natural Resources (CLF)

Credit Suisse maintained an Underperform rating on Cliffs Natural Resources (NYSE: CLF) with a price target of $10. Nathan Littlewood is bullish into next week's earnings, but remains a long-term bear. He also warned a potential short squeeze.

" . . . we are bullish on CLF into next week’s earnings. The magnitude of cost cutting efforts is likely to surprise the street. In aggregate we believe these could be worth >$300mn in EBITDA. SepQ14 trade data looks solid as well. Pricing will be horrible, but this should be expected," said Littlewood. "Longer term: we remain net cautious (see below) but acknowledge scope to become more constructive on this name if a) the threat of new entrants into the Great Lakes subsides (we think it will), and b) management are able to make progress on some of the initiatives we outline on slide 17."

"Investors’ conviction in the short trade has grown over this period. 1-2 yrs ago short-squeezes were fairly common whenever the iron ore price rallied, as most were using CLF as a vehicle to express a bearish view on the iron ore price," continued the analyst. "Not that we have had an iron ore price rally for a while, but today we feel that the short interest is much ‘stickier’. The market has not only increased its conviction in the (short) iron ore trade, but we today investors also have a much better grasp of the company-specific issues being faced here CLF is the second most heavily shorted Metals & Mining stock in the US."

"We are nervous that the SepQ14 earnings may cause a short squeeze in this stock, as we expect underlying production volumes to be strong and management commentary on cost cutting to be favorable," he added.

For an analyst ratings summary and ratings history on Cliffs Natural Resources click here. For more ratings news on Cliffs Natural Resources click here.

Shares of Cliffs Natural Resources closed at $8.54 yesterday.

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