Cleveland-Cliffs stock fell again.  2 reasons why Wall Street is worried.
1 min read

Cleveland-Cliffs stock fell again. 2 reasons why Wall Street is worried.

Shares of US steelmaker Cleveland-Cliffs fell after Wall Street suffered its second downgrade in the last few days.

On Tuesday, JP Morgan analyst Bill Peterson downgraded Cleveland-Cliffs stock to Hold from Buy. His price target increased to $17 from $23.

Cliffs shares fell about 3% to $15.18 in pre-market trading


S&P500

AND


Dow Jones Industrial Average

futures fell 0.3% and 0.4%, respectively.

The two main reasons for Peterson’s downgrade are lower steel prices and higher operating expenses, which are drawing cash away from shareholders.

Benchmark steel prices are currently around $720 per tonne, down around 15% year-on-year. In terms of capital spending, Cliffs spent nearly $600 million on plants and equipment in 2023. Peterson expects this to grow to about $700 million in 2024 and more than $900 million in 2025.

As a result of higher spending and lower prices, Peterson’s free cash flow estimates for 2024 and 2025 will be $600 million and $880 million, respectively, up from $1.8 billion generated in 2023.

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Peterson’s call is the second downgrade in the last week. GLJ Research analyst Gordon Johnson downgraded Cliffs stock to “Sell from Buy,” citing a slowing economy and increased steel production capacity that threatens to disrupt the industry’s supply-demand balance.

Following both downgrades, approximately 29% of analysts covering Cliffs stock currently have a Buy rating, according to FactSet. At the beginning of this year, half of the analysts covering Cliffs stock were bulls. The average “buy” rating for S&P 500 stocks is around 55%.

The average analyst price target for Cliffs stock is around $22 per share.

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Investor sentiment deteriorated along with the sentiment on Wall Street. Heading into Tuesday’s trading, Cliffs shares were down about 23% from a year earlier.

Write to Al Root at [email protected]