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Cliffs Natural Resources Inc (CLF) Plunged on Analysts Downgrades

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The stock price of Cliffs Natural Resources Inc (NYSE:CLF) plunged by more than 14 percent tp $18.30 a share on Wednesday around 3:20 PM in New York after two equity research firms downgraded their ratings for the company citing that its sell-off will continue.

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Cliffs Natural Resources Inc (NYSE:CLF) is the worst performing stock in the S&P 500 (INDEXSP:.INX) year to date after its price declined by 51 percent since January. Analysts from Morgan Stanley downgraded its rating to underweight with a $14 mid cycle value from $36 per share. Credit Suisse Equity Research analysts downgraded their rating to underperform and lowered the price target from $30 per share to $10 per share.

Morgan Stanley (NYSE:MS) analysts downgraded their rating and price target for the stock of Cliffs Natural Resources Inc (NYSE:CLF) due to the surprising dividend cut to $0.15 and based on the deteriorating US iron ore market balance as well as reserve depletion, which are not yet priced in by the market.

In a note to investors, Evan Kurtz, Alexander Levy, and Marcus Lindberg of Morgan Stanley believe that the supply demand balance in the isolated Great Lakes pellet market will decline up to negative ~13 mt of  new supply over the next ~3 years in a ~60 mt market. According to them, “As the only non-steel making producer in the region, we believe CLF will be the most impacted. U.S iron ore segment EBITDA could halve vs. 2012 levels.

In addition, the analysts expect Cliffs Natural Resources Inc (NYSE:CLF) to deplete its iron ore segment reserves in the Asia Pacific in ~6 years.

On the other hand, Credit Suisse analysts Nathan Littlewood and Yan Truong believe that the ongoing structural changes in the company could bring negative impact on its pricing power and erode the earnings potential of its iron ore business.

Littlewood and Truong emphasized that recent capital raise implemented by the company delayed its balance sheet problems, but it is not a permanent solution. According to them, Cliffs Natural Resources Inc (NYSE:CLF) need to implement more drastic solution within the next 12 months such as selling the APAC iron ore assets, selling a part of its USIO business, or completing a multi-billion dollar equity raise.

On the contrary, analysts at Goldman Sachs Equity Research upgraded their rating for Cliffs Natural Resources Inc (NYSE:CLF) from sell to neutral citing that the stock’s performance reached their price target. In a note to investors, analysts Sai Tharani, Chelsea Bolton, and David Wang wrote, “We are upgrading CLF as the risk-reward profile has become more balanced and we see more downside for the Sell-rated names in our coverage.” However, they emphasized that their long-term outlook for the company remain bearish.

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