Cleveland-Cliffs (CLF) PT Raised to $28.35 at GLJ Research; Could Rise Above $180

June 10, 2021 7:22 AM

GLJ Research analyst Gordon Johnson raised the price target on Cleveland-Cliffs (NYSE: CLF) to $28.35 (from $22.09) while maintaining a Buy rating.

The analyst commented, "According to a new analysis we built that analyzes CLF's cash flows based on various benchmark HRC price scenarios and just a handful of static assumptions, at current spot quotes CLF is trading at <0.6x forward 2022 and 2023 EBITDA, indicating substantial upside potential when extrapolating today's prices onto a mid-cycle multiple of about 5x - this compares to the current 2023 EV/EBITDA multiple for CLF peers Nucor (NUE; NC) and Steel Dynamics (STLD; NC) of 11.5x and 8.6x, respectively. Moreover, when considering our checks suggest: (i) the market is still very clearly tight, with market participants quoted as saying buyers still cannot find a mill willing to accept a spot order, and (ii) coming US steel capacity is really not much after stripping out value-added lines and idled plans (i.e., we have accounted for <5MMt incrementally coming from BRS, Bluescope, STLD, and NUE cumulatively [Ex. 1]), we see a scenario where record high prices are sustained through 2021 into 2022. Under that backdrop, should markets extrapolate record high HRC prices and apply what could be described as a mid-cycle multiple to spot assumptions, we see a sizable revaluation higher in CLF's share price as fated. That is, even when assuming 80% of the forward curve, CLF's EBITDA could be at or near $3bn. Using 80% of the curve price and a mid-cycle EBITDA multiple of 5x, we estimate a new price target of $28.35/ share (+22% upside from yesterday's closing price), up from $22.09 prior."

Johnson adds that that CLF’s shares could see +675% upside (above $180) should the market begin to extrapolate today’s HRC prices into the future at a mid-cycle EV/EBITDA multiple of 5.0x.


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