CLF: Rare Earths Hype Will Likely Fade Against Weak Steel Fundamentals

Analysts have nudged our Cleveland Cliffs fair value estimate higher to approximately $8.62 from about $6.06 per share. This reflects a modestly higher long term valuation multiple even as they factor in softer near term revenue growth, still pressured margins, and a mixed macro backdrop for steel demand.

Analyst Commentary

Recent Street research on Cleveland Cliffs underscores a cautious tone that tempers the upside implied by our modestly higher fair value estimate. While some major firms see room for appreciation following the latest earnings update, a number of bearish analysts are flagging downside risks tied to both macro and company specific factors.

A key area of debate centers on the durability of the recent share price rally. Bearish analysts argue that the move has been driven more by sentiment around initiatives such as rare earth opportunities and new commercial agreements than by a demonstrable improvement in core steel profitability, execution, or balance sheet strength. They see this as leaving the stock vulnerable if expectations are not met.

At the same time, target price revisions and rating changes point to growing concern that current valuation already discounts much of the anticipated recovery in U.S. sheet prices and medium term earnings power. The tightening spread between bearish price targets and the prevailing share price suggests limited margin of safety should macro conditions or company level execution disappoint.

Macro risks also loom large in the more cautious research. Bearish analysts highlight the combination of slowing commodity demand in China and an uneven industrial backdrop in key end markets, even as some upside is expected from a potential rebound in U.S. and European steel demand. This mix raises questions about the sustainability of pricing and volumes beyond the near term.

Goldman Sachs stands out as a notable outlier on the positive side. The firm raised its price target and reiterated a constructive stance following the most recent earnings report. However, the broader research mosaic, particularly from more skeptical voices, underscores that the path to realizing bullish scenarios may be narrow and execution dependent.

Bearish Takeaways

• Bearish analysts view the recent double digit share price rally as driven by optimism around rare earth prospects and new agreements rather than a proven turnaround in steel margins, creating downside risk if these narratives fail to translate into earnings.
• Some target prices have been reset lower or left unchanged despite the stock move, indicating that cautious analysts believe current valuation more than reflects near term spot price improvements and a better 2026 earnings outlook.
• Concerns persist over the company’s ability to restore sustainable profitability after multiple quarters of negative gross margins, with skeptics seeing this as evidence of structural pressure on returns and free cash flow generation.
• Macro headwinds, including weakening Chinese commodity demand and uncertainty around the depth and duration of any U.S. and European demand rebound, are cited as key risks to both growth expectations and the multiple investors are willing to pay.

What's in the News

• EU officials are warning that potential U.S. moves to broaden steel and aluminum tariffs could strain a recent trade agreement and may impact major producers, including Cleveland-Cliffs, if higher duties or tighter quotas are implemented (Bloomberg periodical).
• Cleveland-Cliffs named POSCO as its strategic partner under a transformative Memorandum of Understanding that leverages the new U.S. Korea trade agreement. The arrangement aims to expand POSCO's U.S. customer base while aligning with domestic origin and trade rules, with a definitive deal targeted for late 2025 or early 2026 and closing in 2026 (company client announcement).
• The company completed a follow on equity offering of approximately $952 million, issuing 75 million common shares at about $12.69 per share to bolster its balance sheet and fund strategic initiatives (company offering disclosure).
• Cleveland-Cliffs successfully concluded a production trial with a major automotive OEM showing its exposed steel can replace aluminum using existing aluminum forming equipment. This removes the need for costly retooling and is already transitioning into routine production orders, with additional customer interest emerging (company product announcement).
• In its latest buyback tranche update, the company reported no share repurchases in the third quarter of 2025, keeping total completed repurchases under the April 2024 authorization at about 7.5 million shares for $124 million, or roughly 1.6% of shares outstanding (company buyback update).

Valuation Changes

• Fair Value Estimate has risen significantly to approximately $8.62 per share from about $6.06, reflecting a higher long term valuation despite softer near term fundamentals.
• Discount Rate has edged up slightly to around 10.63% from roughly 10.54%, implying a marginally higher required return for equity holders.
• Revenue Growth has fallen sharply in the model to about 0.25% from roughly 4.89%, signaling a more cautious outlook on top line expansion.
• Net Profit Margin has been trimmed modestly to about 2.54% from approximately 3.10%, indicating slightly weaker expected profitability levels.
• Future P/E multiple has increased meaningfully to roughly 12.1x from about 6.1x, suggesting a greater share of the valuation is now driven by higher expected earnings multiples rather than earnings growth.