NEW YORK (TheStreet) -- Shares of Cliffs Natural Resources Inc. (CLF) - Get Report are higher by 2.49% to $9.47 in pre-market trading, as the company expects economic growth to increase demand for steelmaking raw materials.
Cliffs expects economic growth in the U.S. to continue through the remainder of 2014. Despite the unanticipated first-quarter 2014 contraction in GDP, the significant GDP growth experienced in the second quarter marked a return of the U.S. economy to its prior upward trajectory, the company said.
In its outlook, the company said domestic steel production and the corresponding demand for steelmaking raw materials are expected to be supported directly by construction activity, energy extraction and motor vehicle production, the company added.
The international mining and natural resources company reported that lower revenues were primarily driven by a 32% reduction in market pricing for iron ore and a 17% reduction in market pricing for metallurgical coal, the company said.
Cliffs suffered a $5.7 billion writedown of its coal and iron ore assets amidst declining prices, Reuters reported, adding that the non-cash impairment charge of $5.7 billion includes $4.5 billion related to the assets at its Bloom Lake iron ore mine in Quebec.
For the third quarter of 2014, Cliffs recorded a net loss attributable to Cliffs' common shareholders of $5.9 billion, or $38.49 per diluted share, compared with a net income attributable to Cliffs' common shareholders of $104 million, or 67 cents per diluted share, in the third quarter of 2013.
Additionally, coal prices have halved over the past three years, while iron ore prices have dropped about 40% this year alone due to excess supplies and sluggish steel demand from China, Reuters added.
Separately, TheStreet Ratings team rates CLIFFS NATURAL RESOURCES INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate CLIFFS NATURAL RESOURCES INC (CLF) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, unimpressive growth in net income, poor profit margins, weak operating cash flow and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 62.47%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 101.21% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 92.5% when compared to the same quarter one year ago, falling from $146.00 million to $10.90 million.
- The gross profit margin for CLIFFS NATURAL RESOURCES INC is rather low; currently it is at 21.56%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.99% significantly trails the industry average.
- Net operating cash flow has significantly decreased to -$41.90 million or 110.11% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- CLF's debt-to-equity ratio of 0.61 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that CLF's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.57 is low and demonstrates weak liquidity.
- You can view the full analysis from the report here: CLF Ratings Report