What Morgan Stanley’s Downgrade Signals for Cleveland-Cliffs Stock

Morgan Stanley’s downgrade of Cleveland-Cliffs (CLF) from Overweight to Equal-weight, framed around concerns that recent steel price gains and the stock’s valuation already reflect much of the upside, has drawn fresh attention from investors.

Cleveland-Cliffs’ share price has pulled back recently, with a 3.18% one day decline and a 12.77% drop over the past week. However, the 90 day share price return of 43.08% and 1 year total shareholder return of 71.82% point to momentum that has been strong rather than fading.

If this steel move has your attention, it can be useful to compare it with other materials related opportunities using Simply Wall St’s screener for 8 top copper producer stocks

So with Cleveland-Cliffs pulling back after a strong 90 day and 1 year run, yet still trading at a small discount to one intrinsic value estimate, is this recent weakness a fresh entry point or is the market already pricing in future growth?

Most Popular Narrative: 3% Overvalued

The most followed Cleveland-Cliffs narrative sees fair value at $11.60, slightly below the last close of $11.89, which helps explain why some analysts view the stock as already pricing in improvement.

Strategic footprint optimization, internal coke and feedstock integration, and direct moves to lower fixed costs and SG&A have already resulted in unit cost reductions. Ongoing initiatives are expected to deliver further cost savings, driving enhanced free cash flow, lower leverage, and a structurally higher earnings profile through improved operating margins.

Curious what kind of revenue path, margin recovery, and earnings level are built into that fair value for Cleveland-Cliffs? The narrative leans on specific growth assumptions, a defined earnings hurdle, and a future profit multiple that together need to line up for today’s price to make sense.

Result: Fair Value of $11.60 (OVERVALUED)

However, Cleveland-Cliffs’ heavy reliance on U.S. steel tariffs and its exposure to automotive demand mean that policy changes or weaker auto production could quickly challenge that fair value story.

Another View on Cleveland-Cliffs’ Valuation

The most followed narrative has Cleveland-Cliffs slightly overvalued at a fair value of $11.60, but our DCF model reaches a different conclusion, with the stock trading about 4.7% below its estimated future cash flow value of $12.48. Which perspective do you think better reflects the risk and reward trade off?

Next Steps

Mixed messages on Cleveland-Cliffs so far? Act while the data is fresh and consider both sides for yourself by reviewing the 3 key rewards and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.