Banking

Stock Of The Day Flashes New Earnings Power, Buy Signal

Cleveland-Cliffs

Cleveland-Cliffs

CLF


$2.69


12.71%


Stock Of The Day Flashes New Earnings Power, Buy Signal173%

IBD Stock Analysis

  • Working on 26.61 base buy point
  • Strong move above 50-day line triggers early entry
  • Triple-digit earnings and revenue growth
Stock Of The Day Flashes New Earnings Power, Buy Signal

Composite Rating

Stock Of The Day Flashes New Earnings Power, Buy Signal

Industry Group Ranking

Stock Of The Day Flashes New Earnings Power, Buy Signal

Emerging Pattern

Stock Of The Day Flashes New Earnings Power, Buy Signal

Consolidation

* Not real-time data. All data shown was captured at
2:02PM EDT on
10/22/2021.

Cleveland-Cliffs (CLF) is the IBD Stock Of The Day as the steelmaker shows off its transformed earnings prowess, which looks to continue next year. CLF stock jumped into a buy zone after topping Q3 estimates and offering a bullish outlook — somewhat more upbeat than its peers.




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Cleveland-Cliffs Earnings

Cleveland-Cliffs posted Q3 EPS of $2.33 vs. just 4 cents a year ago. In dollar terms, that equated to net income of $1.3 billion vs. just $2 million a year ago.

Year-ago results didn’t account for the its purchase of ArcelorMittal‘s (MT) USA operations. That deal closed in December. Along with the acquisition of AK Steel announced in December 2019, Cleveland-Cliffs has gone through a dramatic transformation. Based on Q3 results, it’s clearly paying off.

“We went from $2 billion annual revenues in 2019 to expected revenues of $21 billion in 2021,” CEO Lourenco Goncalves said in the earnings news release. He added that Q3’s $1.9 billion of adjusted EBITDA equals 50% of the $3.8 billion year-to-date total, “showing that our profitability continues to increase.”

Using its record free-cash flow, Cleveland-Cliffs retired $1.2 billion in preferred stock in Q3, equivalent to buying back 10% of shares.

Goncalves also touted CLF’s “successful” negotiations of annual fixed-price sales contracts with some of its most important customers. “Differently from other steel companies more exposed to spot prices, we believe that our average sales price next year should be higher than in 2021, allowing us to continue to grow our already strong profitability and to further strengthen our balance sheet.”

In other words, CLF has gotten limited help from this year’s surge in steel prices, but it stands to get a significant boost in 2022. As an example, Goncalves told analysts on the earnings call, “We are doubling the price of our steel plate,” based on rates already renegotiated with clients.

CLF Stock

CLF stock surged nearly 13% to 23.85 in Friday’s stock market action. The high-volume move past its 50-day line, along with a break above the downsloping trend line from CLF stock’s Aug. 13 intraday high of 26.51, offered investors an early entry point.

CLF stock is still below a more traditional 26.61 buy point from a 10-week consolidation, according to a MarketSmith analysis.

CLF stock has a strong 83 IBD Composite Rating, but that may be about to jump after its latest earnings report. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows all-time winners often have a Composite Rating of at least 95 near the start of big runs.

NUE, STLD

Although Nucor and Steel Dynamics also reported record earnings in Q3, CLF was the standout. That’s because NUE and STLD are more exposed to spot prices. On Monday, Morgan Stanley analyst Carlos De Alba, citing investor worries that peak steel prices have come and gone, slashed his price target for STLD, NUE and CLF stocks, as well as U.S. Steel, which reports on Oct. 29.

Although Nucor said Q4 earnings might be another record, NUE stock is stuck below its 50-day line. STLD, in contrast, made a run above its 50-day line, earning it IBD Stock Of The Day honors on Wednesday, though it finished the week below that key level What STLD has going for it is the coming launch of its Sinton, Texas, flat roll mill, which could boost shipments by 15%-20% in 2022, even as capital spending dips.

Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.

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