- KeyBanc downgraded Cleveland-Cliffs from Overweight to Sector Weight on valuation concerns after a ~47–56% six-month rally pushed shares beyond its prior $13 target.
- The firm flagged rising unit costs, the end-2025 lapse of a favorable ArcelorMittal slab contract, and modest earnings estimate cuts as key headwinds.
- CLF traded around ~11× 2026 EV/EBITDA, suggesting most upside from catalysts is already priced in.
- Shares fell about 5% to roughly $12.62, even as potential POSCO partnership and non-core asset sales remain longer-term levers.
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On January 7, 2026, KeyBanc Capital Markets shifted its rating for Cleveland-Cliffs from Overweight to Sector Weight, indicating a more neutral stance relative to the steel sector. This move was primarily motivated by valuation concerns: the stock had outpaced KeyBanc’s own prior $13 price target following a robust rally. The valuation metrics—specifically, trading at ~11× EV/EBITDA for 2026 estimates and an implied target multiple near 13×—suggest that much of the upside from strategic catalysts is already embedded in the price.
Cost pressures are emerging as a counterbalance to earlier bullish signals. KeyBanc cited rising unit costs driven by a richer product mix, the expiration of a favorable slab supply contract with ArcelorMittal at end-2025, and modest downward revisions to forecasted earnings. Liquidity remains a partial strength—current ratio near 2.04—but the leverage remains a key risk, especially with ~US$8+ billion in debt.
The downgrade’s market response—a ~5% pullback to ~$12.62—reflects investor recognition that the upside from known catalysts (auto steel demand, POSCO deal, non-core asset sales) is less compelling as those drivers are increasingly priced in. Strategic announcements may still provide upside, but margin erosion or delayed execution could quickly reverse gains.
For investors, this signals a shift where discretionary capital may be better deployed elsewhere unless CLF delivers on margin compression, free cash flow improvement, or new unpriced catalysts. Monitoring: 1) actual cost trends in Q4 2025 and into 2026, 2) clarity and structure around the POSCO arrangement, 3) asset sale proceeds and deleveraging path, 4) ability to maintain pricing amid raw material and input cost inflation. Cash flow projections and balance sheet strain remain the primary implicit risks.
Supporting Notes
- KeyBanc downgraded Cleveland-Cliffs to Sector Weight from Overweight on January 7, 2026, referencing that shares “have moved past its prior $13 price target” and valuation being stretched after a ~47-56% rally over six months.
- The downgrade also highlighted lagged steel pricing, higher unit costs (due in part to richer product mix), and the lapse of a favorable slab supply contract with ArcelorMittal at end-2025.
- Shares fell approximately 5% to ~$12.62 in the market following the KeyBanc downgrade.
- Valuation metrics: stock trading near 11× EV/EBITDA on 2026 estimates; with non-core asset sales factored in, possibly ~10×; but either way, near KeyBanc’s prior target multiple.
- Positive or upside catalysts remain: auto contract market share gains, improved liquidity, and potential asset sales; POSCO deal is possible and seen as ‘perhaps likely,’ though specifics are unclear.
- Leverage and debt load remain significant risks: circa US$8.06-8.4 billion in debt, gross profit margin weakness (e.g., −4.94% in one report), and weak S&P ratings (downgraded to B+ from BB−).