Cleveland's Cliff Inc. Shares Plummet by 50% in 2024, Reaching Yearly Low Point
Cleveland-Cliffs, a major steel mill operator, has experienced a 50% drop in its stock value since the year's beginning, contrasting with the 28% rise in the S&P 500 Index. Cleveland-Cliffs' stock plunge is more severe compared to its peers like VALE (NYSE: VALE) with a 42% yearly decrease, ArcelorMittal with a 13% drop, United States Steel Corporation with a 31% decrease, and Nucor Corp (NYSE: NUE) with a 30% drop. This decline is primarily due to the industry's unfavorable business conditions.
Steel prices in the U.S. have been on a downward trend due to reduced domestic demand and weak manufacturing activities. Globally, sector demand remains sluggish because of oversupplies in Europe and high inventory levels in China. Cleveland Cliffs' high exposure to the automotive sector, which continues to face challenges, has made it more susceptible than its competitors. We estimate CLF stock worth around $14.50 per share, approximately 47% higher than its current market price. At the current price of $10 per share, we believe CLF stock has potential for improvement. Notably, the stock has plummeted 70% from March 2022 levels. For those seeking upside with less volatility, consider the *High Quality portfolio*, which has surpassed the S&P and delivered over 91% returns since inception.
Factors impacting Cleveland-Cliffs stock
The decline of recent years can be partly attributed to CLF's 4% revenue drop from 2022 to 2023. Revenue fell by around 12% in the first nine months of the ongoing year to $14.86 billion.
Cleveland-Cliffs' revenue growth from 2021 to 2022 was followed by a downward trend, and its sales price multiple also decreased. The company's sales price multiple changed from 0.6x in 2020 to 0.48x in 2023. Although the company's sales price is now 0.3x, there is a potential upward adjustment when the current sales price is compared to past levels.
The CLF stock decline over the past three years has been far from consistent, with annual returns being more volatile than the S&P 500. The stock returned 50% in 2021, -26% in 2022, and 27% in 2023. In contrast, the Trefis *High Quality Portfolio*, comprising 30 stocks, is less volatile and has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk compared to the benchmark index, resulting in a less chaotic ride, as shown in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with potential rate cuts and multiple wars, could CLF experience a similar underperformance as it did in 2022 over the next 12 months – or will it recover?
Expectations for Cleveland-Cliffs stock
The company reported third-quarter 2024 revenues of $4.6 billion, a decrease from $5.1 billion in the second quarter of 2024, and recorded a net loss of $0.52 per diluted share. This loss was primarily due to one-time charges and losses totaling $145 million, mainly related to an arbitration decision and acquisition-related expenses. Decreased demand and pricing resulted in narrower margins, despite the company achieving its lowest unit cost since 2021.
For the upcoming year 2025, the company aims to increase its EBITDA by over $600 million. It is also anticipated that steel demand will rebound in early 2025, driven by several economic and political factors. Additionally, CLF acquired Stelco Holdings Inc. in the fourth quarter of 2024. This acquisition will expand CLF's flat rolled products reach, boost geographical diversification, and boost its margins. Stelco's portfolio of businesses has minimal exposure to the automotive sector. For more details on CLF's valuation and revenue structure, visit our analyses on *Cleveland-Cliffs Valuation: Is CLF Stock Expensive Or Cheap? and Cleveland-Cliffs Revenue. Invest with Trefis Market Beating Portfolios*.
Cleveland-Cliffs' valuation, as estimated by some analysts, is around $14.50 per share, significantly higher than its current market price of $10, indicating potential for improvement. Despite Cleveland-Cliffs' stock plunging 70% from March 2022 levels, the company's revenue decreased by 4% from 2022 to 2023, reaching $14.86 billion. This decline was more pronounced in the first nine months of the year, with a 12% decrease compared to the same period in 2022. Cleveland-Cliffs' revenue loss is in contrast with its major steel mill competitor, Cleveland Cliffs, which has managed to maintain relatively stable revenue levels.
