Morgan Stanley upgrades Cleveland Cliffs to overweight, says steelmaker may rise 35%
A recent spike in contracts with fixed annual steel prices should boost free cash flow for miner Cleveland-Cliffs, which Morgan Stanley says now is a good time for investors to buy shares. Morgan Stanley upgraded the company from equal weight to overweight in Wednesday’s note and raised its price target to $26 from $13.60. This new target implies a 35% upside potential from Wednesday’s close. “We believe that the recently announced increase in fixed annual steel price contracts (see here) should allow CLF to cope with lower projected spot steel prices and deliver robust FCF returns in the coming years as the company has no major planned investments has,” Carlos De Alba wrote in a note. Shares are up more than 2% in premarket trading after the upgrade. The company announced in December an increase in its annual price contracts for car customers — their largest end market. “The fixed-price contracts are expected to account for 40-45% of the company’s total steel volume in 2023 … with the remaining 55-60% exposed to index prices,” De Alba said. In addition, Morgan Stanley believes that these increases in fixed-price contracts are not fully reflected in the consensus sell-side estimates. The new contracts should result in positive earnings revisions for 2023 and give the stock further momentum, De Alba wrote. “We believe that the release of Q4’22 results will be a near-term catalyst for the stock given the company’s historical guidance for the expected average selling price for the year,” De Alba said. “This should provide the market with further clarity and greater confidence in the impact of increasing annual fixed price contracts.” – CNBC’s Michael Bloom contributed to the coverage.
https://www.cnbc.com/2023/01/12/morgan-stanley-upgrades-cleveland-cliffs-to-overweight-says-steel-producer-can-jump-35percent.html Morgan Stanley upgrades Cleveland Cliffs to overweight, says steelmaker may rise 35%
