Jefferies cuts Cleveland-Cliffs stock rating to Hold, target to $6

Jefferies downgraded Cleveland-Cliffs (CLF) to Hold with a price target of $6, citing concerns over Nippon's $14 billion investment in U.S. Steel and a new mill, which could negatively impact major U.S. steel producers. This downgrade is coupled with recent news of Cleveland-Cliffs missing Q1 2025 earnings estimates, a downgrade from GLJ Research to Sell with a price target of $3.91, and S&P Global Ratings revising the company's credit outlook to negative due to high debt levels and underperformance, despite shareholder approval of executive pay and board re-election.

Analysis

Cleveland-Cliffs (CLF) faces significant headwinds, underscored by a Jefferies downgrade from Buy to Hold with a price target slashed to $6 from $10, primarily due to concerns over Nippon Steel's proposed $14 billion investment in U.S. Steel and new mill construction, which is anticipated to negatively impact U.S. steel producers. This competitive pressure is particularly concerning for Cleveland-Cliffs, given its high leverage to steel pricing, and contributes to a less positive outlook for the U.S. steel industry. The company's stock reflects these challenges, trading near its 52-week low after a 64% decline over the past year. Compounding these issues, Cleveland-Cliffs reported a first-quarter 2025 earnings miss, with an EPS of -$0.92 against an expected -$0.67, and revenue of $4.63 billion falling short of the $4.68 billion consensus. This underperformance led GLJ Research to downgrade CLF to Sell with a $3.91 price target, citing increased debt and strategic missteps. Furthermore, S&P Global Ratings revised CLF's credit outlook to negative, affirming its 'BB-' rating, due to weaker earnings, cash flow, and high debt levels, with leverage projected to be in the 8x-10x range in fiscal 2025. Analysts project a negative EPS of -$2.20 for fiscal year 2025. In response, Cleveland-Cliffs is idling non-core assets, considering asset sales, planning to restart its Cleveland No. 6 blast furnace in 2026 to meet automotive demand, and has secured new multiyear automotive contracts, albeit at lower prices. Despite these challenges and a debt-to-equity ratio of 1.22, shareholders recently approved executive pay and re-elected the board. While InvestingPro analysis suggests the stock may be undervalued and technically oversold, the prevailing sentiment from analysts and rating agencies is markedly cautious.

Key Decisions for Investors

• Investors should exercise significant caution due to multiple analyst downgrades, CLF's recent earnings miss, high projected leverage (8x-10x in FY25), and increased competitive threats from Nippon Steel's U.S. investment.
• Closely monitor Cleveland-Cliffs' ability to execute its turnaround strategy, including asset optimization, debt reduction, the successful restart of its Cleveland No. 6 blast furnace in 2026, and its ability to navigate new automotive contracts at lower price points.
• While InvestingPro metrics suggest potential undervaluation and oversold conditions, these must be weighed against substantial fundamental headwinds, including a projected negative EPS of -$2.20 for FY25 and a highly competitive steel market outlook, before considering or adjusting positions.