Wolfe downgrades Cleveland-Cliffs to Underperform after 16% rally

Wolfe Research downgraded Cleveland-Cliffs to Underperform from Peer Perform with an $18 price target. The shares have risen 16% in two months despite falling steel prices and earnings estimates being revised lower, the analyst tells investors in a research note. Wolfe’s estimates are below consensus but even on consensus earnings numbers, the shares trade at 7.5-times, above Cleveland-Cliffs’ historical 5.2-times three-year average, the analyst tells investors in a research note. The firm likes the company’s free cash flow profile, but thinks its buybacks could be limited due to stated intentions of pursuing more acquisitions. In addition, Wolfe expects greater competition for auto sheet from both mini-mills and aluminum, and greater capex needs to reline blast furnaces ahead.