CLF’s C2Q14 Results Are Slated To Disappoint Consensus, Says Axiom; Reduces PT To $9
Axiom analyst Gordon Johnson was out today with some bearish comments on Cliffs Natural Resources (CLF), reiterating his Sell rating and reduced his price target to $9 price (from $10), ahead of CLF’s second quarter results.
Johnson wrote, “With: (1.) CLF’s forward sensitivity guidance around iron ore spot prices and its corresponding ASPs, (2.) iron ore prices avg’ing $102.66 in 2Q14, (3.) our assumption that CLF has lost some bus. as they are uncompetitive vs. foreign steel imports, & (4.) our assumption that CLF’s costs are slightly higher than originally forecast due to higher fixed cost absorption, we see acute downside to 2Q14/14/15 Consensus ests, as well as credit violation risk”.
The analyst added, “Given our slightly more subdued overall view, and what we believe is a very real risk of a credit downgrade, we adjust our 12-month price objective lower to $9/shr (~42% downside from today’s price) from $10/shr prior. How do we derive our $10/shr 12-month price objective? Well, taking our 2014 EBITDA assumption of $605mn, applying a 7.5x multiple (which is above the long-term avg. of ~5x), then adjusting for net debt of $2.9bn, we arrive at an equity value of $1.33bn; thus, using CLF’s shares outstanding of 153.0mn, we arrive at a value per share of $9. Risks: (1.) renegotiation of rail contract liability associated with Bloomlake, (2.) incremental China stimulus, and (3.) an abrupt, sudden, increase in iron ore prices given positive seasonality in China Mar.-May”.
According to TipRanks.com, which measures analysts and bloggers success rate based on how their calls perform, analyst Gordon Johnson currently has a one-year average return of 0.0% and a 48% success rate. Johnson is ranked #2392 out of 3215 analysts.