Cliffs could dive
In direct contradiction to the bullish note struck by analysts at BB&T Capital earlier this week (where analysts upgraded Cliffs Natural Resources (CLF) stock on news of its CEO's departure ) a different banker announced this morning that it's not nearly so hot on the company's chances. Disagreeing with BB&T's analysis (but agreeing with my own), analysts at CIBC cut their rating on Cliffs from sector perform to underperform.
Why might this be the right all, and BB&T's endorsement of the stock the right one?
For the same reasons I outlined earlier in the week: Cliffs Natural Resources is not a profitable company. It might turn profitable next year ( or it might not ). But even if it does, the 4% consensus earnings growth projections of the analysts simply aren't strong enough to support the 10 times forward earnings valuation the share now carry. Not with Cliffs burning through cash at the rate of $500 million a year. Not while it's laden with $3.4 billion in net debt.
Based on these facts, CIBC is right to turn to be pessimistic..
Sentiment: Strong Sell
They lost money due to a write-down. That hurts their balance sheet but their actual operating income was still over $3 a share for 2012. Also they have more debt than that, its a little over 4 billion. They make money by staying in operation so they will not be filing for bankruptcy any time soon. As long as a business makes money by staying open ten they will stay open. And even if they aren't making money they will remain open for a limited time until they cannot pay their obligations any longer.
your cash burn rate is way off man! Company plugged the drain on development on canadian mine til things improve and may get a partner to fund the whole thing and the company is cutting its cost structure to be more lean. Construction in USA is picking up as is car production which is bullish for iron ore use and developing countries will soon figure out they will need to do construction stimulus to get themselves out of their malaise which will be bullish for iron ore and met coal use.
JP Morgan thinks CLF is worth $34, not that I actually give a rat's #$%$ about what analyst says. I do my own homework. I think the stock should be trading at least at $28 right now. We'll get there in a heartbeat with a few days of panic short covering any day now. Once the stock starts building a little momentum, traders will be rushing right in. I can easily see CLF trading above 30 by year end.
Sentiment: Strong Buy
You state "Cliffs is not a profitable company" For your information the company earned $3.25 per share during the last fiscal year and is projected to earn $2.29 for the current year.
While there is no denying iron ore/met coal prices are down, the company has done a good job of remaining profitable by reducing production costs, etc. As the company trades at about 1/2 it's book value it must be viewed as a take-out candidate and anyone short could wake up some morning in a world of hurt. No place to be short!
I'm glad I don't listen to CNBC for anything. They are nothing but about lies and untruths 75% of the time. I'd lose my shirt if I ever listened to them, just like Jim Cramer who waffles every week (I'd buy this stock and then 1 week later, don't buy it). Never seen a guy people seem to like but yet he changes his mind on the drop of a hat. Not good for an investor.