Shares of Cleveland-Cliffs Inc (CLF, Financial) have recently seen a notable daily gain of 9.63% and an impressive three-month gain of 47.62%. With an Earnings Per Share (EPS) of $0.67, investors are keen to understand whether the current market valuation truly reflects the company's intrinsic value. Is Cleveland-Cliffs modestly undervalued as suggested by its current stock price of $20.5 against a GF Value of $23.6? This article delves into a detailed valuation analysis to uncover the answer.
Company Introduction
Cleveland-Cliffs Inc is a leading flat-rolled steel producer and a major supplier of iron ore pellets in North America. The company's operations are vertically integrated, encompassing everything from mining raw materials to primary steelmaking and downstream finishing. With a significant presence in the automotive industry and a diverse product range, Cleveland-Cliffs operates mainly in the United States and Canada, with the U.S. being its largest market. Against this backdrop, we compare the stock price of Cleveland-Cliffs to its GF Value, offering a comprehensive look at its fair market valuation.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock, taking into account historical trading multiples, the GuruFocus adjustment factor based on past performance and growth, as well as future business performance estimates. This metric suggests that Cleveland-Cliffs (CLF, Financial) is modestly undervalued, with a fair value that the stock should be traded at. When the stock price is significantly below this line, it indicates a higher potential future return.
With a market cap of $10.30 billion and a stock price of $20.5, Cleveland-Cliffs appears to be modestly undervalued, implying that the long-term return of its stock could surpass its business growth.
Financial Strength
Investors must consider a company's financial strength to avoid potential capital loss. Cleveland-Cliffs has a concerning cash-to-debt ratio of 0.01, ranking lower than 97.09% of its peers in the Steel industry. This figure leads to a financial strength rating of 5 out of 10, indicating a fair balance sheet.
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Profitability and Growth
Consistent profitability is a key indicator of a lower-risk investment. Cleveland-Cliffs has been profitable for 7 out of the past 10 years, with a revenue of $21.90 billion and an Earnings Per Share (EPS) of $0.67 over the past twelve months. However, its operating margin of 2.73% is below the industry median. Nonetheless, its profitability rank is a solid 8 out of 10.
Growth is a vital aspect of valuation, and Cleveland-Cliffs' 3-year average annual revenue growth of 84.3% outperforms 98.3% of its industry counterparts. The 3-year average EBITDA growth rate of 50% also ranks well within the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) can further reveal a company's profitability. Cleveland-Cliffs' ROIC of 2.78 is currently below its WACC of 12.84, suggesting that it is not creating value over its capital cost.
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Conclusion
In summary, Cleveland-Cliffs (CLF, Financial) stock seems to be modestly undervalued. The company's financial health is fair, and its profitability is strong. Its growth outpaces a large portion of the steel industry. For a more detailed look at Cleveland-Cliffs' financials over the last 30 years, interested investors can check here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
