Citi maintains a "Neutral" rating on Cleveland Cliffs (CLF), with a target price of $12.50, reflecting a cautious outlook amid challenging market conditions. CLF closed at $11.98 on November 12, down 4.31% for the day. The report centers on the company's Q3 2024 results, highlighting a significant 32% y/y decline in auto revenues, which is a major concern given the weak auto builds impacting the second half of 2024. Citi notes, "Weak auto builds are the biggest near-term challenge," and anticipates CLF will adopt a more flexible pricing strategy in 2025 to regain market share.
Citi's model update reflects a 25% reduction in 2024 EBITDA to $0.9 billion and a 4% reduction in 2025 EBITDA to $1.6 billion, with EV/EBITDA multiples at 13x and 9x, respectively. The report underscores the sensitivity of CLF's valuation to changes in steel prices and EBITDA per ton, with a free cash flow yield projected at -3% for 2024 and 2% for 2025. Macro influences, such as US steel demand and potential impacts from Trump-era tariffs, are pivotal for CLF's future performance.
Citi's investment thesis balances CLF's market leadership in flat steel and integrated iron ore production against risks from blast furnace market share erosion and decarbonization costs.