Cliffs Natural Resources (CLF) Stock Rises on Encouraging Iron Ore Outlook

NEW YORK (TheStreet) -- Shares of iron ore miner Cliffs Natural Resources  (CLF) rose 2.28% to $5.83 in afternoon trading Monday on encouraging news for iron ore prices.

Brazilian iron ore producer Vale  (VALE) said Thursday that it could reduce its expected iron ore production by up to 30 million tons during the next two years as it attempts to revive its margin amid an ongoing and severe commodity price decline.

An increase in capacity "enables us to close higher-cost and lower-quality production if necessary," said Vale Head of Ferrous Peter Poppinga on a conference call, according to Reuters. "The capacity will be there, 450 million tonnes, and we are going to use it according to market conditions."

Morgan Stanley said in a research note Monday that the global iron ore market will now look to Rio Tinto  (RIO) for further updates.

Vale's move was significant, the firm said, because it marked "the first time the company had publicly recognized that a supply-side response was required. Competitive supply growth in this market appears to be ending. This creates upside risk for prices."

Iron ore hit a 10-year low at the start of April but rallied to have its largest monthly gain in two years.

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 several 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 deteriorating net income, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself."

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

  • 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 980.8% when compared to the same quarter one year ago, falling from -$70.30 million to -$759.80 million.
  • The gross profit margin for CLIFFS NATURAL RESOURCES INC is currently lower than what is desirable, coming in at 25.52%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -170.35% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$228.20 million or 178.29% 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 stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 66.48%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • CLF, with its decline in revenue, slightly underperformed the industry average of 18.4%. Since the same quarter one year prior, revenues fell by 27.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: CLF Ratings Report

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