Cleveland-Cliff's surge over potential rare earth MOU called excessive enthusiasm

Investing.com -- Cleveland-Cliffs Inc 22% jump following the company’s announcement of a memorandum of understanding with a foreign steelmaker and potential rare-earth prospects was called an overreaction by Wells Fargo as it downgraded stock to Underweight from Equal Weight.

“Enthusiasm over unknowns seems excessive,” analyst at Wells Fargo said.

Cleveland-Cliffs shares soared after Chief Executive Lourenco Goncalves said the company signed an MOU with a major global steel producer and was exploring rare-earth opportunities at its iron ore mines in Michigan and Minnesota.

The company also disclosed about $425 million in planned asset sales.

Wells Fargo said those developments did not warrant the sharp rise in the stock, noting that the MOU lacked details and the rare-earth potential was uncertain.

“We don’t know of other deposits in the region, and would be skeptical of an attractive return absent further information”

The brokerage said its earnings estimates remain largely unchanged, despite Cleveland-Cliffs reporting third-quarter adjusted EBITDA of $143 million, which beat consensus by 12%. Revenue missed forecasts by about 3%, while management cut its 2025 capital spending outlook by $75 million to $525 million.

Wells Fargo trimmed its fourth-quarter EBITDA forecast by 11% to $147 million, saying consensus expectations of $211 million look high. It expects stronger results in 2026 as richer auto contracts take effect and steel prices rebound.

The firm said Cleveland-Cliffs’ valuation has run ahead of fundamentals. It kept its price target at $11, based on 8 times estimated 2026 EBITDA, compared with 6-7 times over the past three years.

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