The analysts are undervaluing Cliffs earnings for a bunch of reasons but the general reason is Cliff's committed to spending 1 billion dollars in phase II expansion of Bloom Lake the next two years. This fact and Cliffs debts is strapping the companies ability to create any cash flow. Just think about it. This springs PO and preferred share offering netted the company nearly 1 billion dollars. Since then the company has paid debt down from 4.1 to 3.3 billion and increased cash to 250 million from 100 million at the beginning of the year. So all told in two quarters Cliffs has paid down some 800 million in debt and raised 150 million in cash. Isn't that the 1 billion the company offered in stock earlier. I think what that is saying is earnings numbers are not important and the bottom line is. I would be more interested to listen to any analyst predictions about cash flow and not necessarily earnings. Just so you know according to Carrabbas Cliffs has committed to another 500 million for completion of the phase II work in 2014. Sounds like next year might be a lot like this year. Cash flow wise.
The other problem is that even though Cliffs committed this money how was it spent. Was it spent in the first half of the year, was it spent evenly throughout all four quarters? What is the consistency of the money spent on a per quarter basis? Given the 4th Quarter is the start of winter I am not sure how much money the company is committing to this project? So earnings could be five or six times what was reported in the first quarter. It all depends on how the cash was spent. That is why the analysts are so far off.
They were wrong on Q1 and Q2, missing by huge percentage. When you have one estimate of 1 cent, they are going to miss big again. Wait until Q4 when there is an estimate of a minus 34 cents.
I think the SEC should fine analyst when they miss by more than 20%. Maybe they would be more responsible.