Cleveland-Cliffs shares slide after GLJ Research double-downgrades stock to Sell

Investing.com -- Shares in Cleveland-Cliffs (NYSE:CLF) slid roughly 1.5% in premarket trading Wednesday after GLJ Research double-downgraded the stock to Sell from Buy and cut the price target to $3.91.

The downgrade marks a stark reversal in analyst Gordon Johnson’s stance, who acknowledged a "horrible/terrible call to buy CLF’s stock” in January at $9.90 per share.

According to GLJ’s note, the rating cut reflects deepening concerns over CLF’s operational and financial health. First-quarter EBIT came in at negative $538 million, significantly below consensus expectations of negative $385 million.

Johnson described it as “the worst showing ever (yes, you heard that right),” while first-quarter EBITDA, at negative $174 million, marked the weakest performance since the COVID-era second quarter of 2020.

CLF has guided Q2 steel prices up $40 per ton quarter-over-quarter, yet analysts still project EBIT to remain in the red, with consensus estimates forecasting a loss of $227 million.

“The company is unable to turn a profit in a quarter when prices are rising,” the analyst stressed.

Debt levels also raised red flags. Total (EPA:TTEF) debt surged to a record $7.6 billion, pushing leverage to roughly 40 times total assets.

Johnson wrote that “CLF’s fate appears to be based on the preservation of protectionist measures from President Trump on steel imports as well as the reshoring of U.S. auto manufacturing,” adding that this creates “large risks to the company, depending on ‘what side of the bed’ President Trump wakes up on regarding his tariff policy.”

The analyst identified four key reasons to short the stock despite its 32% decline year-to-date and relatively high short interest of 13.9%. Applying an “(very) generous 8.5x EV/EBITDA multiple” to his 2029 estimate, Johnson arrived at the revised $3.91 price target.

While the company is attempting to restructure operations and focus on the automotive sector, Johnson sees these efforts as insufficient in the current macro and industry backdrop.

“With the fundamentals around the U.S. steel industry in free-fall (and particularly so for CLF), as well as our view that consensus estimates remain too high, we now see CLF as a core short position in any Metals & Mining portfolio,” he concluded.