On Jan 6, we upgraded our recommendation on mining company Cliffs Natural Resources (CLF - Free Report) to Outperform. We are encouraged by the company’s cost management initiatives which will bear fruit in the future reporting periods.
Why the Upgrade?
Cliffs saw higher profit in the third quarter of 2013, reported on Oct 24, riding on its cost reduction measures and higher iron ore pricing. However, its earnings fell short of the Zacks Consensus Estimate. Sales rose modestly and beat expectations.
Estimates for Cliffs are on the upswing following the release of the third quarter results. The Zacks Consensus Estimate for 2013 has gone up 9.5% to $2.99 per share. Moreover, the Zacks Consensus Estimate for 2014 has jumped around 45% to $2.00. With Zacks Consensus Estimates for both 2013 and 2014 going up, Cliffs now has a Zacks Rank #1 (Strong Buy).
Cliffs remains optimistic regarding prospects for cash generation and the opportunities that will fund organic growth projects and return cash to shareholders. It also has a significant presence in the Asia-Pacific region, where demand is still robust, lending support to shipments.
Moreover, Cliffs has taken up initiatives to drive organic growth including developing assets within its existing project pipeline. The company is also boosting its mining and transportation capacity globally. It sees steady end-markets for its customers on the back of a mending U.S. economy.
We also expect Cliffs to gain from its cost-saving initiatives. Management is focusing on improving the cost structure amid a weak pricing environment, reflected by reduction in exploration costs target for 2013 and cost cuts in the North American Coal division.
Other Stocks to Consider
Other companies in the mining industry with a favorable Zacks Rank are Tahoe Resources Inc. (TAHO - Free Report) , General Moly, Inc. (GMO - Free Report) and African Minerals Limited . While Tahoe Resources retains a Zacks Rank #1 (Strong Buy), both General Moly and African Minerals carry a Zacks Rank #2 (Buy).