(RTTNews) - FBR Capital Markets on Wednesday reiterated its "Outperform" rating and increased its price target for iron ore pellets producer Cliffs Natural Resources, Inc. (CLF:
News ), as it believes that the company will be able to use its operating leverage in North American iron ore operations to lower costs and expand margins.
Analyst David Khani, in a research note, said CLF last week reported strong third-quarter earnings, primarily on a decline in North American iron ore costs and continued strength in Asia-Pacific demand. The company also raised its 2009 guidance and offered better-than-expected 2010 volume guidance.
The brokerage increased its 2009 EPS/EBITDA estimates to $0.47/$360 million from a loss of $0.24 per share/$236 million to account for the third-quarter results and improved fourth quarter guidance primarily in North American operations. The analyst expects costs to come down meaningfully in North American operations due to higher volumes and fixed cost leverage.
In its outlook for 2010, CLF said it expects sales of 23 Metric tonnes of iron ore, compared to the analyst's estimate of 19.5 MTs, and 3 MTs of coal, which is higher than the firm's estimate of 1.2 MTs, in North America. The company sees sales of 8 MTs of iron ore and 3 MTs of coal in Asia Pacific, compared to analysts' projection of 8 MTs and 3.5 MTs, respectively.
The brokerage raised its 2010 EPS/EBITDA estimates to $2.56/$746 million from $2.34/$635 million primarily to reflect increased guidance/its macro view, the Wabush mine acquisition, and tighter North American costs.
According to the brokerage, the key catalysts for the stock are upcoming annual iron ore benchmark negotiations that normally start in November, improving domestic steel capacity utilization, and monthly iron ore imports in China.
''We are thus reiterating our Outperform rating and increasing our price target to $41 from $35, reflecting 7.0x 2010E EV/EBITDA,'' the firm noted.
 | | To receive FREE breaking news email alerts for Cliffs Natural Resources Inc. and others in your portfolio |
|
by RTT Staff Writer
For comments and feedback: contact editorial@rttnews.com