Perhaps Cliffs Natural Resources
The concerns were there prior to Cliffs' earnings report last night. Steelmakers, including United States Steel
For the third quarter, Cliffs Natural reported a profit of $4.07 per share on revenue of $2.12 billion, which is 87% more net income and 59% more in revenue than it produced in the year-ago period. With estimates varying wildly on revenue according to Yahoo! Finance ($1.91 billion to $2.44 billion), I wouldn't read much into the company's revenue miss (analysts had been looking for $2.16 billion). Instead, I would focus on Cliffs' $0.45 upside earnings surprise and bullish guidance given the circumstances surrounding its sector.
Leading the charge to greater profitability was the company's iron ore segment, which saw margins rise across the board. Favorable pricing and increased sales volume pumped up sales margins in its U.S. iron ore business by 58%, while its Eastern Canadian and Asia iron ore business witnessed smaller, but still impressive, sales margin growth of 24% and 25%, respectively.
If there was one knock against Cliffs during the quarter it was in its North American coal business, which has languished to meet production goals. Its Oak Grove Mine has been offline for months because of severe weather damage experienced earlier in the year, and its Pinnacle Mine only recently came back online after a carbon monoxide scare.
Even with these problems, Cliffs Natural still delivered strong results and solid guidance. Even though the company anticipates U.S. growth to be "stagnant to modest," it reaffirmed its belief that its products will remain in high demand in the U.S. and that strong Asian demand for crude steel production and iron ore should keep it busy in the coming year. The company's output guidance was mixed with U.S. iron ore forecasts rising over previous estimates, while Eastern Canada and Asia dropped modestly.
Still, if the company can keep growing by acquisition and boosting its margins anywhere near the rate it has in the past few years, it could easily be a bargain at current levels. With stronger operating margins and a considerably lower PEG ratio than CONSOL Energy
What do you think? Is Cliffs Natural a stock to own going forward or is this just a ticking time bomb waiting to be dragged down by falling commodity prices? Share your thoughts in the comments section below and consider adding Cliffs Natural Resources to your free and personalized watchlist to keep up on the latest news with the company.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He gladly welcomes gifts of coal in his Christmas stocking since it makes for an excellent investment. You can follow him on CAPS under the screen name TMFUltraLong and on Twitter where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.