Wells Fargo: Cliffs Natural Resources Should Lose Half Its Value

Cliffs Natural Resources Inc CLF had a horrible 2014 (-73 percent) and is having a bad 2015 (-8 percent). In a morning note, Wells Fargo said that it expects those troubles to continue, reiterating Cliffs at Underperform with a $1 to $3 price target.

Despite Cliffs impressive Q4 beat on headline EPS, Wells Fargo cautioned that the figure included quite a bit of adjustments – making it not comparable to the Street’s estimates. Further, guidance was weak, meaning Cliffs currently trades at 10x 2015 EBITDA - a steep multiple considering “the weak balance sheet and risk from the ArcelorMittal contract reset.”

Instead, Wells Fargo would value Cliffs at $1 to $3, reflecting an 8-9x EV/EBITDA on 2015 estimates. If iron ore prices rebound, Chinese growth accelerates, or low-cost miners decelerate supply additions, Wells Fargo sees a risk to its analysis.