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Aug 12, 2021
general Analysis
[2 min Read]
So I know I'm a little late, but I finally got around to updating my financials to incorporate CLF's recent 10-Q filing - and I'm very surprised.
My previous PT was $32.25, and after inputting their new data, the new PT is approximately $41!!!. I'd love to see that "analysis". How does a PT of $26 make sense when their NAV alone is $3.5 billion (27% of current market cap)
Honestly, I'm shocked, but the numbers don't lie. DCF is the best way to put a market value on a company, and this is what the numbers are saying.
Updated Income Statement
I.S. from 10-Q
Assumptions:
- Steel isn't like lumber and won't suddenly fall to normal or historical levels within a month. Lumber skyrocketed due to COVID causing a supply shortage, while demand remained steady. Steel prices have increased not only because of supply shortages & demand increases, but also because of global governmental & political catalysts. China will be announcing export tariffs within the next month before their building season starts in October. These taxes will range between 15-25%.
- Steel prices will remain elevated until Late 2022 or Early 2023.
- Q3 & Q4 financials will closely mimic Q2
- CLF will continue to pay down debt & return money to shareholders
- CLF doesn't idle operations due to another covid variant. I think it's very unlikely since they are offering their employees $3,000 to get the shot. LG is a savage.
The analysis above is important because the surge in steel companies is almost solely due to market price increases.
From CLF's 10-k and their raised forward guidance:
"The full-year revision is based on better-than-expected contractual renewals and the assumption that the US HRC index price averages $1,100 per net ton for the last nine months of the year. "
As of 8/11/21 (my 32nd birthday btw), the weighted average price per ton according to the HRC futures index is $1756 for the rest of 2021, or in other words, a 56.7% increase over CLF's assumption that their forward guidance hinges on.
Now, just because the weighted average of the futures prices is $1756, doesn't mean that CLF has locked in pricing or has contracts at that specific price. However, what it does show that prices have elevated to a greater level than they forecasted, and they are very likely realizing that tailwind.
Positions:
- $52k in CLF commons
- $6.5k in calls. $15c 1/2022 & $12c 1/2023