Why Cliffs Natural Resources (CLF) Is Dropping on Monday

NEW YORK (TheStreet) -- Cliffs Natural Resources (CLF) is trading lower on Monday after Axiom Capital initiated coverage of shares with a "sell" rating and $10 price target.

The firm said falling iron ore prices through 2014 will mean the steelmaker will use all its debt covenants, which will lead it to cut its dividend even further.

The Cleveland, Ohio-based business will likely also issue a large secondary offering, further diluting its value.

By late morning, shares had taken off 4.2% to $17.87. 

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TheStreet Ratings team rates CLIFFS NATURAL RESOURCES INC as a Hold with a ratings score of C-. The 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 reasonable valuation levels, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including poor profit margins, 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:

  • Net operating cash flow has significantly increased by 92.46% to $460.00 million when compared to the same quarter last year. In addition, CLIFFS NATURAL RESOURCES INC has also vastly surpassed the industry average cash flow growth rate of -50.21%.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, CLIFFS NATURAL RESOURCES INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • CLF has underperformed the S&P 500 Index, declining 22.20% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The gross profit margin for CLIFFS NATURAL RESOURCES INC is rather low; currently it is at 18.47%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.85% significantly trails the industry average.

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