Cleveland-Cliffs (CLF) Stock May Be A Bargain On Cash Flow Recovery
Cleveland-Cliffs stock is coming off a difficult stretch, with the share price down 57.0% over the past 5 years, yet both the intrinsic value estimate using a Discounted Cash Flow (DCF) approach and conventional market multiples currently point to the shares trading below what the underlying cash flows may justify.
- The 57.0% share price decline over 5 years leaves existing holders with a steep loss, while raising the question of whether expectations have swung too far to the pessimistic side.
- For Cleveland-Cliffs, future cash flow from its steel and mining operations can support the current valuation if demand and margins hold up. However, any sustained pressure on volumes or pricing would weigh heavily on what those cash flows are worth today.
- On Simply Wall St’s broader checks, Cleveland-Cliffs screens as undervalued in 5 of 6 tests, suggesting the valuation tools lean toward the stock being cheap rather than fully priced, even after factoring in risks linked to its sector.
The issue now is whether Cleveland-Cliffs offers a genuine margin of safety at today’s price, or if the market is appropriately discounting the long period of weak returns.
Find out why Cleveland-Cliffs' -2.1% return over the last year is lagging behind its peers.
Is Cleveland-Cliffs a Bargain on Cash Flow?
The Discounted Cash Flow (DCF) model here uses projected cash flows to estimate what Cleveland-Cliffs might be worth today. The latest twelve month free cash flow shows an outflow of about $1.03b, so the model assumes conditions recover toward positive cash generation over time rather than staying at this stressed level.
Based on those projections, the 2 Stage Free Cash Flow to Equity model arrives at an intrinsic value of about $15.11 per share. Compared with the current market price, this implies a discount of 38.6%, indicating the market price is well below what the DCF suggests for Cleveland-Cliffs if its steel and mining cash flows move back toward the forecast path.
On this DCF view, Cleveland-Cliffs stock currently appears undervalued relative to its projected cash flows.
Our Discounted Cash Flow (DCF) analysis suggests Cleveland-Cliffs is undervalued by 38.6%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.
Does Cleveland-Cliffs Look Undervalued on Sales?
For a company like Cleveland-Cliffs that is closely tied to commodity-driven revenue, the P/S multiple is a straightforward way to see what investors are paying for each dollar of sales.
Cleveland-Cliffs currently trades on a P/S of about 0.3x, compared with an industry average of 2.9x and a peer group average of 1.7x in Metals and Mining. On Simply Wall St’s more tailored fair ratio, which adjusts for the company’s size, risk profile and sector, Cleveland-Cliffs is pegged at 0.8x. The current 0.3x level therefore sits well below both broad industry benchmarks and this company specific fair ratio.
This gap suggests the market is assigning a low value to Cleveland-Cliffs’ revenue base relative to typical metals and mining stocks, even after accounting for sector risks in the fair ratio model.
Overall, on the P/S multiple Cleveland-Cliffs stock appears undervalued compared with what the fair ratio suggests investors might usually pay for its revenue.
See what the numbers say about this price — find out in our valuation breakdown.
The Cleveland-Cliffs Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where the Cleveland-Cliffs valuation puzzle leaves off by explaining which paths for Cleveland-Cliffs' growth, margins and earnings would make the current stock price appear high or low. Each narrative connects its numbers to a specific view on how Cleveland-Cliffs' prospects and risks might change, giving you a set of scenarios you can return to over time as new information appears on the Community page.
Cleveland-Cliffs investors are weighing two sharply different community views on what the current share price really reflects.
Bull case: 15% undervalued
"Bullish analysts also highlight that tighter service center inventories could support mill utilization and pricing for a period. If realized, this would be supportive for Cleveland-Cliffs’ revenue and margin execution against current expectations…"
Read the full Bull Case to see why Cleveland-Cliffs could be undervalued
Bear case: 16% overvalued
"Bearish analysts argue that the roughly 50% share price rise since April 1 has already baked in expectations for elevated steel prices. They contend this leaves Cleveland-Cliffs with less margin of safety if pricing or demand softens…"
Read the full Bear Case to see why Cleveland-Cliffs could be overvalued
Do you think there's more to the story for Cleveland-Cliffs? Head over to our Community to see what others are saying!
The Bottom Line
Cleveland-Cliffs screens as undervalued on both its Discounted Cash Flow (DCF) intrinsic value estimate and on sales-based market multiples, so the current price embeds cautious expectations despite supportive valuation work. With the broader checks also leaning toward undervalued, the key question is whether cash flows from steel and mining operations can consistently support those models. For you, the crux is whether margins and demand prove resilient enough for that discount to close, or whether the stock stays cheap because the market is correctly pricing in the risk of weaker profitability.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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