Cleveland-Cliffs (NYSE:CLF) saw its stock drop about 1.5% in premarket trading Wednesday after GLJ Research sharply lowered its rating on the company from “Buy” to “Sell,” slashing its price target to $3.91.
The shift represents a dramatic turnaround by analyst Gordon Johnson, who openly acknowledged his January recommendation to buy the stock at $9.90 as a “horrible/terrible call.”
GLJ’s decision stems from growing concern over the company’s financial performance and outlook. In Q1, Cleveland-Cliffs reported EBIT of negative $538 million—far worse than analysts’ average expectation of a $385 million loss.
Johnson didn’t mince words, calling the result “the worst showing ever (yes, you heard that right).” The company’s EBITDA for the quarter also disappointed, coming in at negative $174 million – the weakest since Q2 2020 during the height of the COVID-19 pandemic.
Although Cleveland-Cliffs projects a $40-per-ton increase in steel pricing for Q2, Wall Street still expects further losses, with consensus EBIT estimated at negative $227 million. “The company is unable to turn a profit in a quarter when prices are rising,” Johnson noted.
Adding to concerns, Cleveland-Cliffs’ debt has ballooned to a record $7.6 billion, bringing leverage to approximately 40x total assets.
Johnson expressed skepticism about the company’s reliance on political support, writing, “CLF’s fate appears to be based on the preservation of protectionist measures from President Trump on steel imports as well as the reshoring of U.S. auto manufacturing,” which he sees as risky given the unpredictability of future tariff decisions. He warned these factors create “large risks to the company, depending on ‘what side of the bed’ President Trump wakes up on regarding his tariff policy.”
Despite a 32% decline in the stock year-to-date and short interest near 14%, Johnson outlined four key reasons to maintain a short position. Using a “(very) generous 8.5x EV/EBITDA multiple” applied to his 2029 forecast, he arrived at the new $3.91 target.
Although Cleveland-Cliffs has been attempting to realign operations and strengthen its position in the automotive space, Johnson believes current market conditions and internal challenges will continue to weigh heavily on performance.
“With the fundamentals around the U.S. steel industry in free-fall (and particularly so for CLF), as well as our view that consensus estimates remain too high, we now see CLF as a core short position in any Metals & Mining portfolio,” he concluded.