Want an inflation hedge? Try steel. Maybe try Cleveland-Cliffs (CLF) . Cleveland-Cliffs reported the firm's third quarter financial performance on Friday morning. The firm posted GAAP EPS of $2.33, beating Wall Street comfortably on revenue generation of $6 billion. That number also beat Wall Street, and happened to be good enough for year over year growth of 263.6%. The revenue number was a quarterly record for the firm by the way.
Cleveland-Cliffs set a number of quarterly records over the three month reporting period. The EPS of $2.33 works out to net income of $1.3 billion, a new record. Adjusted EBITDA of $1.93 billion was a new record. The performance also produced record free cash flow that was used to retire all outstanding preferred shares, equating to a 10% share buyback.
The firm nearly quadrupled steelmaking revenues and sales volumes annually to $5.87 billion and 4,153 net tons, respectively.
Cleveland-Cliffs is more reliant upon contract sales, less exposed to spot prices than are some of its competitors. For this reason, while some firms have been able to make sales at higher prices at times this year, Cleveland-Cliffs CEO Lourenco Goncalves believes "that our average sales price next year should be higher than in 2021."
The firm's average selling price was $1,334 per ton for the three months, up from an even $1,000 for Q3 2020. Year to date, CLF's average selling price has been $1,122 per ton versus $1,011 for the full year of 2020. The firm has shipped 12.5 million tons of steel over the first nine months of the year.
Taking a look at the balance sheet, cash is down from nine months ago, but current and total assets are substantially higher on growth in accounts receivable and in inventories. Current assets dwarf current liabilities and total assets are significantly larger than total liabilities less equity. Long-term debt is quite large, but is not growing, and the firm has actually reduced the entry for goodwill. We like firms that do that.
Goncalves added, "The $1.9 billion of Q3 adjusted EBITDA we have just reported is equivalent to half of our year to date adjusted EBITDA of $3.8 billion, showing that our profitability continues to increase, as we continue to implement our way of doing business, and take advantage of - and extract synergies from - our modern, efficient and unique footprint."
I like Cleveland-Cliffs. I have been on the bandwagon for a short while now, producing income through the sales of related puts and calls. Now, we have a little equity appreciation, I see no reason to bail on the name now, especially if the CEO, who is reputable, sees a better year ahead.
Readers will note that the shares have repeatedly found support close to $18, which just happens to be a 61.8% Fibonacci retracement of the 2021 rally. Now, the shares, on this rally are retaking the 21 day EMA and 50 day SMA in one fell swoop. Pivot remains a ways off, at $26, if one sees the pattern since July as a basing period. Of course, we only have one apex, so we are not sure that this is a base.
For that reason, while $26 is my pivot, it is also my primary target that would unleash a higher target (probably around $31) if eventually taken. I intend to remain long the shares, and add on down days, not driven by firm-specific news.