Why Cliffs Natural Downgraded to Strong Sell? - Analyst Blog


On Jul 15, Zacks Investment Research downgraded mining company Cliffs Natural Resources Inc. ( CLF ) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Cliffs, in Apr 24, posted a net loss of $83 million, or 54 cents per share for first-quarter 2014, which compared unfavorably with a net income of $97 million or 66 cents per share in the year-ago quarter. Barring income tax benefit of $22 million, loss was 68 cents per share, wider than the Zacks Consensus Estimate of a loss of 21 cents per share.

Sales for the quarter were also down 18% to $940 million from $1,140.5 million reported in the prior-year quarter and missed the Zacks Consensus Estimate of $1,039 million. The decline was a result of significantly lower market pricing for iron ore and metallurgical coal and a 2% reduction in global iron ore sales volumes, most of which was weather related.

Cliffs has delivered negative earnings surprises in 2 of the last 4 quarters, with an average negative surprise of 22.50%.

Cliffs' North American Coal segment is facing pressure due to soft pricing for coal products. The company has lowered its revenues-per-ton outlook for the division for 2014 to $80-$85 from its previous outlook of $85-$90. The reduction is primarily due to lower market pricing for metallurgical coal products.

Pricing of seaborne iron ore and metallurgical coal is expected to remain volatile in the near term, which may impact revenues in most of the company's business segments.

Cliffs has also discontinued all developmental activities indefinitely at the Chromite project in Ontario. Moreover, the company's move to curtail Phase II expansion at its Bloom Lake project and idle production at its Wabush Scully Mine in Newfoundland and Labrador is expected to affect production results in its Eastern Canadian Iron Ore division in 2014.

The Zacks Consensus Estimate for earnings for 2014 decreased 47.8% to 12 cents per share over the last 7 days. Similarly, the Zacks Consensus Estimate for 2015 went down 21.4% to 33 cents per share over the same period.

Other Stocks to Consider

Better-ranked stocks in the mining industry include Alderon Iron Ore Corp. ( AXX ), Pretium Resources Inc. ( PVG ) and Sandstorm Gold Ltd. ( SAND ). All these stocks carry a Zacks Rank #1 (Buy).

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CLIFFS NATURAL (CLF): Free Stock Analysis Report

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PRETIUM RES INC (PVG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CLF , SAND , AXX , PVG



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