Cleveland-Cliffs Testing January’s 7-Year High

Cleveland-Cliffs Inc. (CLF) is testing January’s 7-year high in the upper teens in Wednesday’s pre-market session after raising Q1 2021 and fiscal year 2021 EBITDA (earnings before interest, taxes, depreciation. and amortization) guidance by a wide margin. The company now expects first quarter EBITDA of $500 million, compared to prior consensus of $415 million, and full year of $3.5 billion vs. $3.07 billion.

Retiring Long-Term Debt

North America’s top flat rolled steel and iron ore producer missed Q4 2021 top and bottom line estimates just five weeks ago, reporting a profit of $0.24 per-share on a 322% year-over-year revenue increase to $2.26 billion. It excluded $44 million in charges that would have sliced off  another $0.10 per-share, with both elements contributing to a shareholder exodus that relinquished more than 20% in two sessions. The stock bottomed out a few days later and was trading in the upper half of a three-month trading range ahead of last night’s guidance.

Cleveland-Cliffs benefited from a huge surge in iron ore prices in 2020, fueled by higher inflation expectations in reaction to massive COVID stimulus around the world. It posted a 7-year high in January 2021 and pulled back, seeking to take advantage of bullish industry conditions with February’s secondary offering of 60 million shares. The transaction went off around $16, with the proceeds used to redeem a chunk of the company’s high debt load.

Wall Street and Technical Outlook

Wall Street consensus has improved in the last three months and now stands at an ‘Overweight’ rating based upon 4 ‘Buy’ and 2 ‘Hold’ recommendations (just six analysts cover the issue). Price targets currently range from a low of $18.00 to a Street-high $22.00 while the stock is set to open Wednesday’s session more than $1 below the median $19.50 target. This placement could support a breakout and quick ascent into the low 20s.

Cleveland-Cliffs topped out in triple digits in 2008 and completed a massive double top breakdown in 2014. The stock has been gaining ground since posting a 29-year low in 2016 and has now remounted breakdown resistance in the lower teens. The 200-month moving average ended the advance into January 2021 but positive price action since that time could signal the first thrust above the moving average since 2013.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.