Cleveland-Cliffs stock has fallen sharply over the past few years, yet the current valuation checks, including an intrinsic value estimate from a Discounted Cash Flow (DCF) model, point to the shares trading at a discount to that estimate.

• Over the past 5 years, Cleveland-Cliffs shareholders have seen the stock decline 52.9%, which sets the stage for questions about whether today’s price undervalues the company or reflects ongoing concerns.
• Recent commentary around US steel prices potentially peaking after a strong rally can weigh on sentiment, while any improvement in confidence around future cash flows may support Cleveland-Cliffs' valuation.
• The stock screens as cheap on the broader checks, with a high value score of 5 out of 6, and the Discounted Cash Flow (DCF) intrinsic value suggesting the shares trade about 24.2% below that estimate.

The issue now is whether Cleveland-Cliffs' current price already reflects the cautious views on steel markets or if the intrinsic value signals point to mispriced long term cash flows.

Is Cleveland-Cliffs a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) method values Cleveland-Cliffs by projecting the cash it could generate for shareholders and discounting that back to today.

For Cleveland-Cliffs, the model starts from latest twelve month free cash flow, which was a cash outflow of about $1.0b, and assumes recovering free cash flows over time. On that basis, the 2 Stage Free Cash Flow to Equity model arrives at an estimated intrinsic value of about $13 per share. With the current share price around $10, this implies the stock is trading at roughly a 24.2% discount to that intrinsic value estimate.

Morgan Stanley’s downgrade, tied to concerns that the recent rally in US steel prices may be peaking, helps explain why the market keeps Cleveland-Cliffs below the DCF value, even though the model assumes improving cash generation over the long term.

On balance, the Discounted Cash Flow valuation indicates that Cleveland-Cliffs stock currently appears undervalued relative to its projected cash flows.

Our Discounted Cash Flow (DCF) analysis suggests Cleveland-Cliffs is undervalued by 24.2%. Track this in your watchlist or portfolio, or discover 43 more high quality undervalued stocks.

Is Cleveland-Cliffs a Bargain on Sales?

For Cleveland-Cliffs, the P/S multiple is a useful cross check because revenue can be easier to compare across steel producers than earnings, which often swing with commodity cycles.

Cleveland-Cliffs currently trades on a P/S of about 0.3x, which is far below the Metals and Mining industry average of roughly 2.9x and also below a peer group average of about 1.7x. On Simply Wall St’s fair P/S estimate of 0.8x, which reflects the company’s margins, risk profile and size, the gap suggests the stock changes hands at a sizeable discount to what this framework would imply.

Even allowing for investor caution around steel prices, Cleveland-Cliffs’ current valuation on sales looks low compared with both its sector and the modelled fair ratio.

On the P/S multiple, Cleveland-Cliffs stock appears undervalued relative to both peers and the fair P/S estimate.

The Cleveland-Cliffs Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where Cleveland-Cliffs' valuation puzzle leaves off by spelling out which assumptions about future growth, margins and earnings would need to hold for the stock to be worth materially more or less than today’s price, based on scenarios that sit on the Community page. Each Narrative ties a fair value to a specific storyline about Cleveland-Cliffs' possible catalysts and risks, so you can see over time which version seems to be unfolding.

Community views on Cleveland-Cliffs sit far apart, with one camp focused on tariff support and cost work, and the other on structural headwinds and capital demands.

Bull case: 15% undervalued

"New investments in higher-margin stainless and specialty steels, supported by infrastructure investment, electrification, and clean-energy buildout, may expand Cleveland-Cliffs' addressable markets and support lasting product mix improvement."

Bear case: 23% overvalued

"The company's high capital intensity and aging asset base require continual investment and maintenance, which may compress free cash flow and net margins over time."

Do you think there's more to the story for Cleveland-Cliffs? Head over to our Community to see what others are saying!

The Bottom Line

Cleveland-Cliffs screens as undervalued on both the Discounted Cash Flow (DCF) intrinsic value estimate and the P/S multiple, so the market is clearly pricing in a fair amount of caution. The real question is whether concerns around future cash generation and capital needs justify that discount, or whether cash flows eventually track closer to the intrinsic value assumptions. For you, the key judgment is whether steel demand, pricing and margins can support a healthier and more consistent free cash flow profile, or whether the current valuation is a warning that these risks are harder to overcome than the models imply.

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.