Why Cleveland-Cliffs' Acquisition Announcement Is A 'Very Important Strategic Deal'

Cleveland-Cliffs Inc CLF has been trending lower over the last two months, but the stock is bouncing back Monday after the company announced the acquisition of Ferrous Processing and Trading Co. 

What Happened: Cleveland-Cliffs announced that it will be entering the scrap business through the acquisition of Ferrous Processing and Trading Co., which it will acquire for a total enterprise value of approximately $775 million. 

Lebenthal's Take: Cleveland-Cliffs has experienced some turbulence recently, but the long-term trend remains intact, Cerity Partners' Jim Lebenthal said Monday on CNBC's "Fast Money Halftime Report."

He described the Ferrous Processing and Trading Company acquisition as "a very important strategic deal."

A lot of people consider Cleveland-Cliffs an iron ore company, but it's actually an integrated steel manufacturer, Lebenthal said. 

"The iron ore it produces goes into the manufacture of steel that it then sells at now very inflated prices," he said. 

The deal secures a new source of raw material through scrap metal for Cleveland-Cliffs, Lebenthal said. 

"This is very important because this is where the steel industry is going is taking scrap metal and using electric arc furnaces to turn it into steel."

Lebenthal noted that he will be paying attention to free cash flow numbers when Cleveland-Cliffs reports earnings in the upcoming weeks. 

Cleveland-Cliffs is set to announce its third-quarter financial results before the market opens Oct. 22.

See Also: Cleveland-Cliffs Whale Trades For October 11

CLF Price Action: Cleveland-Cliffs has traded as high as $26.50 and as low as $7.19 over a 52-week period.

The stock was up 5.14% at $21.68 Monday afternoon. 

Photo: David Mark from Pixabay.