What’s this? The iron miners including Rio Tinto (RIO), BHP Billiton (BHP) and Vale (VALE) are getting killed but here’s the generally bearish Gordon Johnson of Axiom Capital upgrading Cliffs Natural Resources (CLF) to Hold from Sell. The reason? Valuation. Johnson explains:
Reuters While we certainly see further downside as possible, we see the risk/reward as balanced at today's share price/valuation level; given the stock fell -52% at its trough set 10/10/14 from our last update 7/23/14 (where we strongly recommended being short) and has corrected roughly -60% since our initiation of coverage when the shares were trading at ~$25/shr, we take this opportunity to move to the sidelines pending C3Q14 results
While we see further downside for iron ore prices as likely over the n-term, we expect increased volatility to define Cliff's shares n-term. That is, given our call, when iron ore was at $140/mt in '13 that it was headed to ~$80/mt in '15, has played out, & been subsequently "priced into" Cliffs's shares at today's prices, we view mgmt's decisions on nonfundamental issues driving the stock over the n-term (vs. fundamental factors). As such, w/ the shares at our 12-month price objective, & trading at a ~8x EV/EBITDA multiple based on our 2015 ests., we move our rating to HOLD from SELL.
No kidding about that further downside risk, as iron miners are getting completely wrecked today. While shares of Cliffs Natural Resources have fallen 6.3% to $8.50 at 1:32 p.m., Rio Tinto has dropped 3.5% to $49.01, BHP Billiton has declined 1.2% to $57.70 and Vale is off 4.3% at $11.29.
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