Is Trending Stock ClevelandCliffs Inc. (CLF) a buy it now?

Cleveland Cliffs (CLF) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Over the past month, shares of this mining company have returned +26.1%, compared to the +5.8% change in the Zacks S&P 500 composite. During this period, the industry Zacks Mining – Miscellaneous , which includes Cleveland-Cliffs, lost 0.1%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Cleveland-Cliffs is expected to post earnings of $1.11 per share for the current quarter, representing a year-over-year change of -52.4%. Over the past 30 days, the Zacks consensus estimate has changed by -24.3%.

For the current fiscal year, the consensus earnings estimate of $4.89 indicates a change of -16.7% from the prior year. Over the last 30 days, this estimate has changed by -5%.

For the next fiscal year, the consensus earnings estimate of $3.34 indicates a -31.7% change from what Cleveland-Cliffs is expected to report a year ago. Over the past month, the estimate has changed by -16.5%.

With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Cleveland-Cliffs is ranked Zacks Rank #5 (Strong Sell).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase its revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.

For Cleveland-Cliffs, the consensus current-quarter sales estimate of $6 billion indicates a year-over-year change of -0.1%. For the current and future fiscal years, the estimates of $23.94 billion and $20.39 billion indicate variations of +17.1% and -14.8%, respectively.

Latest reported results and history of surprises

Cleveland-Cliffs posted revenue of $6.34 billion last quarter, representing a year-over-year change of +25.6%. EPS of $1.31 for the same period versus $1.46 a year ago.

Compared to the Zacks consensus estimate of $6.08 billion, reported revenue is a surprise +4.23%. The EPS surprise was -2.24%.

In the past four quarters, Cleveland-Cliffs has exceeded consensus EPS estimates twice. The company has exceeded consensus revenue estimates three times during this period.

Evaluation

No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a critical determinant of its future price performance.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these parameters gives a good idea of ​​the reasonableness of its price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Cleveland-Cliffs is rated A on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information on Zacks.com might help determine whether it’s worth paying attention to the market buzz about Cleveland-Cliffs. However, its Zacks No. 5 ranking suggests it may underperform the broader market in the near term.

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

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