Guilfoyle: The Cleveland-Cliffs Case

Cleveland Cliffs (CLF) – Getting the Cleveland-Cliffs Inc Report, the flat-rolled steel maker, had a rough month as its shares fell 29% from August to September. The future looks brighter now as more growth is expected, says Real Money’s Stephen “Sarge” Guilfoyle.

The company said on Oct. 11 that it plans to buy Ferrous Processing and Trading, a major processor and distributor of ferrous scrap centered in Ohio and Michigan. The enterprise value of the acquisition is nearly $775 million.

Ferro Processing and Trading processes nearly 3 million tons of scrap annually, 50% of which is of first-class quality. The company produced approximately $100 million in EBITDA for the 12 months ended August 31.

Cleveland-Cliffs CEO Lourenco Goncalves said prime scrap will become scarcer in the future.

Another promising factor is that the prices of iron ore and reinforcement in China have risen.

Investing in Cleveland-Cliffs can prove profitable, Guilfoyle wrote in a recent column on Real Money Pro:. “I think CLF can meet all of its short to medium term commitments, and that should be our (my) window as an investor,” he wrote.

During its late summer plunge, the stock also underperformed competitor Nucor (naked) – Get Nucor Corporation Report , at 27.5%, the Dow Jones US Steel Index, at 24.7% and the broader Materials Select Sector SPDR ETF XLB discount at 9.5%.

“Of course, the Chinese engine is sputtering, at least in part due to shifting priorities in Beijing,” Guilfoyle wrote. That said, demand for materials, both ferrous and non-ferrous metals, will only find support if Congress takes the plunge and passes legislation around a larger spending package that will hopefully include significant infrastructure build/rebuild.”

Analysts believe the company has more growth potential and the current consensus estimate is earnings per share of $2.23 in the current quarter, versus a loss of $0.03 per share a year ago based on revenue of $5 .69 billion. That would mean a 245% increase in turnover. Compared to the third quarter of 2019, pre-pandemic, the sales growth would be 925%!

The downside is that Cleveland-Cliffs faces several hurdles — their net cash position is declining, their debt load is “huge,” and free cash flow is negative, Guilfoyle wrote.

Get more trading strategies and investment insights from the real money contributors.

{n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)}
fbq(‘init’, ‘135067773744716’);
fbq(‘track’, ‘PageView’);
var contentId = ‘ci028fa1efb00025e7’;
if (contentId !== ”) {
fbq(‘track’, ‘ViewContent’, {content_ids: [contentId], content_type: ‘product’});
})(); .