Cliffs Natural Shares Upgraded To Outperform By Macquarie

Cliffs Natural Resources Inc (NYSE: CLF) announced the earlier restart of United Taconite and raised its 2016 sales and production guidance to 18mm and 16.5 mm long tons, respectively. Macquarie’s Anthony Young upgraded the rating for the company from Neutral to Outperform, while raising the price target from $4.00 to $7.50.

Analyst Anthony Young expects Cliffs Natural’s earnings and cash flow to improve, following the rally in domestic steel prices and volumes. He believes 2017 and 2018 would be an improvement over 2016. Since the United Taconite mine has an annual capacity of 5.4 mm tons, sales of 20 mm tons of iron ore is likely in 2017 and beyond.

Related Link: Cliffs Natural Resources Commences United Taconite Restarts, Boosts 2016 Sales Forecast

Strong Steel Sentiment

Domestic steel mills are ramping up production, given lower imports and a more than 70 percent increase in flat roll steel prices from their 4Q15 lows. Young expects Cliffs Natural’s earnings power to be boosted by the healthier environment. He added, “We do not believe that this higher steel price has been factored into consensus estimates to date.”

The analyst raised the EBITDA estimates for 2016, 2017 and 2018 from $265mm to $330mm, from $270mm to $419 and from $250mm to $351mm, respectively.