In a research report issued Friday, FBR analyst Lucas Pipes upgraded shares of Cliffs Natural Resources Inc (NYSE:CLF), from Market Perform to Outperform, while tweaking the price target to $10.00 (from $11.00). The upgrade comes after the iron ore maker reported solid first-quarter results and maintained full-year guidance for non-commodity price related items.
Pipes noted, “Against the IODEX curve, and assuming long-term iron ore prices of $55/Mt, we estimate that CLF is trading today at a level supporting a 14.5% rate of return on FCF. Our $10 price target assumes that the stock will discount a 9% rate of return against the IODEX curve. This implies a 2018 EV/EBITDA multiple of 7.3x. We estimate the downside case for the stock near $4 per share, which underwrites CLF at 4.5x EBITDA on $55/Mt long-term iron ore prices. This puts the upside at 49%, versus downside of 39%, according to our estimates. We appreciate that Cliffs still has tremendous leverage to changes in seaborne iron ore prices, even as sales volumes are protected in the North American market, which investors should consider carefully.”
Bottom line: “With the stock trading in the mid-$6 range, we estimate that Cliffs is now discounting long-term iron ore prices of $55/Mt. We believe this is a reasonable entry point for a company that has addressed its balance sheet overhang and is well positioned to supply North American iron ore demand for the foreseeable future.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Lucas Pipes has a yearly average return of 4.5% and a 50% success rate. Pipes has a 49% average return when recommending CLF, and is ranked #1304 out of 4569 analysts.
Out of the 8 analysts polled by TipRanks (in the past 12 months), 3 rate Cliffs Natural stock a Buy, 4 rate the stock a Hold and 1 recommends to Sell. With a return potential of 29%, the stock’s consensus target price stands at $8.61.