Why Cliffs Natural Resources (CLF) Is Spiking Today

NEW YORK (TheStreet) -- Cliffs Natural Resources (CLF) rose 9.7% to $21.28 Tuesday after activist hedge fund Casablanca Capital announced it took a 5.2% stake in the iron miner.

In a public letter the hedge fund urged Cliffs to combine its Canadian Bloom Lake property and its Asian segments to create a new company it calls Cliffs International. Casablanca would then have the mining company spin off the new company to existing shareholders. The move, the hedge fund says, can potentially raise shares of Cliffs to $53 a share.

In a press release, Cliffs says it held "productive preliminary conversations" with Casablanca, and that it "looks forward to continuing the dialogue to better understand their assumptions, projections and overall views."

The press release goes on to say the mining company expects to "continue making progress on reducing costs, strengthening its balance sheet with cash flows from operations, and taking a disciplined approach to capital spending."

TheStreet Ratings team rates CLIFFS NATURAL RESOURCES INC as a "hold" with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CLIFFS NATURAL RESOURCES INC (CLF) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Metals & Mining industry. The net income increased by 37.7% when compared to the same quarter one year prior, rising from $85.10 million to $117.20 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 0.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CLIFFS NATURAL RESOURCES INC has improved earnings per share by 6.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CLIFFS NATURAL RESOURCES INC swung to a loss, reporting -$6.59 versus $11.34 in the prior year. This year, the market expects an improvement in earnings ($3.00 versus -$6.59).
  • CLF's debt-to-equity ratio of 0.62 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 0.56 is low and demonstrates weak liquidity.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, CLIFFS NATURAL RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.

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