JP Morgan Downgrades Cleveland-Cliffs: Rising Capex And Modest Auto Demand Hamper Growth Prospects

Cleveland-Cliffs Inc. CLF shares are trading lower after JP Morgan analyst Bill Peterson downgraded the stock from Overweight to Neutral and lowered the price target to $17 (from $23).

The re-rating reflects reduced price forecasts for value-add and plate, rising capex needs through 2028, and limited near-term growth compared to industry peers.

The analyst observes auto inventories largely replenished, with May ending at 48 days of supply, aligned with JPM’s Auto Research team’s view of the new norm at ~46 days, down from pre-COVID levels of ~60 days.

S&P Mobility forecasts a modest 0.6% year-on-year decline in US LV production for 2025, signaling reduced demand from restocking, says the analyst.

Also, management notes weakness in EV demand and oversupply in the NOES market. Despite challenges, Cliffs is performing well and has attractive long-term prospects, writes the analyst.

The analyst appreciates Cliffs’ improved financial position and emphasis on shareholder returns but says that many investors may prioritize cash reserves for potential mergers over debt-funded buybacks.

According to the analyst, Cliffs’ diversified assets and vertical integration should shield it from scrap supply challenges compared to peers, and its ties to the auto industry, with fixed contract pricing, can offer earnings stability.

The analyst lowered EPS estimates to $0.25 (from $0.79) for FY24 and $1.16 (from $1.71) for FY25.

Price Action: CLF shares are down by 4.03% to $15.02 at the last check Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Janno Nivergall from Pixabay.