Steelmaker Cleveland-Cliffs (CLF) inked a deal to acquire scrap metal processor Ferrous Processing and Trading Company (FPT) and related entities for $775 million.
Shares of the company were up 5.2% in early trading on Monday following the news. (See Cleveland-Cliffs stock charts on TipRanks)
FPT is one of the largest processors and distributors of prime ferrous scrap in the United States, representing 15% of the domestic prime scrap market. FPT processes approximately 3 million tons of scrap every year across 22 scrap processing facilities. FPT generated EBITDA of approximately $100 million over the past year ending August 31, 2021.
The addition of FPT will enable Cleveland-Cliffs to buy back prime scrap directly from its clients, skipping the middleman and improving margins for both Cleveland-Cliffs and its clients.
Furthermore, it will optimize Cleveland-Cliffs’ productivity at its facilities, expand its portfolio of high-quality ferrous raw materials, have substantial access to high-in-demand prime scrap, and meet its environmentally-friendly, low-carbon goals.
Cleveland-Cliffs CEO Lourenco Goncalves, commented, “With all the new flat-rolled EAF capacity coming online in our market over the next four years, prime scrap will only become more and more scarce.”
He further added, “As the largest supplier of flat rolled steel in North America, Cleveland-Cliffs is the main source of the steel that generates prime scrap in manufacturing facilities. Furthermore, throughout our entire footprint, Cleveland-Cliffs also consumes a very significant amount of scrap in our EAFs and BOFs.”
The acquisition is expected to close in the fourth quarter of 2021, subject to certain regulatory approvals.
Goldman Sachs analyst Emily Chieng recently upgraded Cleveland-Cliffs from Hold to Buy but decreased her price target to $24 from $26 (11% upside potential).
The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 2 Buys and 1 Hold. The average CLF analyst price target of $28.67 implies 32% upside potential from current levels.
Cleveland-Cliffs scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
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