Financial Review: Cleveland-Cliffs (CLF) versus Gerdau (NYSE:GGB)

Gerdau (NYSE: GGB) and Cleveland-Cliffs (NYSE:CLF) are both mid-cap basic materials companies, but which is the superior stock? We will contrast the two businesses based on the strength of their valuation, risk, institutional ownership, dividends, profitability, analyst recommendations and earnings.

Insider and Institutional Ownership

4.9% of Gerdau shares are owned by institutional investors. Comparatively, 56.7% of Cleveland-Cliffs shares are owned by institutional investors. 0.0% of Gerdau shares are owned by insiders. Comparatively, 0.5% of Cleveland-Cliffs shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Analyst Recommendations

This is a summary of current recommendations and price targets for Gerdau and Cleveland-Cliffs, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gerdau 0 2 5 0 2.71
Cleveland-Cliffs 2 4 3 0 2.11

Gerdau currently has a consensus price target of $4.00, suggesting a potential upside of 1.52%. Cleveland-Cliffs has a consensus price target of $8.67, suggesting a potential upside of 9.70%. Given Cleveland-Cliffs’ higher probable upside, analysts clearly believe Cleveland-Cliffs is more favorable than Gerdau.

Dividends

Gerdau pays an annual dividend of $0.01 per share and has a dividend yield of 0.3%. Cleveland-Cliffs does not pay a dividend. Gerdau pays out -2.8% of its earnings in the form of a dividend.

Profitability

This table compares Gerdau and Cleveland-Cliffs’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gerdau -5.44% 3.74% 1.73%
Cleveland-Cliffs 5.48% -29.06% 13.16%

Volatility & Risk

Gerdau has a beta of 2.27, meaning that its share price is 127% more volatile than the S&P 500. Comparatively, Cleveland-Cliffs has a beta of 1.59, meaning that its share price is 59% more volatile than the S&P 500.

Valuation and Earnings

This table compares Gerdau and Cleveland-Cliffs’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Gerdau $10.85 billion 0.62 -$828.79 million ($0.36) -10.94
Cleveland-Cliffs $2.11 billion 1.11 $174.10 million $0.64 12.34

Cleveland-Cliffs has lower revenue, but higher earnings than Gerdau. Gerdau is trading at a lower price-to-earnings ratio than Cleveland-Cliffs, indicating that it is currently the more affordable of the two stocks.

Summary

Cleveland-Cliffs beats Gerdau on 9 of the 16 factors compared between the two stocks.

Gerdau Company Profile

Gerdau S.A. (Gerdau) is a manufacturer of long steel in the North and South America. The Company is engaged in the production and commercialization of steel products in general, through its mills located in Argentina, Brazil, Canada, Chile, Colombia, Spain, the United States, Guatemala, India, Mexico, Peru, the Dominican Republic, Uruguay and Venezuela. Its segments are Brazil Operations, which includes operations of steel and iron ore in Brazil, except Special Steels, and the operation of metallurgical coal and coke in Colombia; North America Operations, which includes all operations in North America, except those of Mexico and Special Steels; South America Operations, which includes operations in South America, except Brazil and the operation of metallurgical coal and coke in Colombia, and Special Steel Operations, including special steel operations in Brazil, Spain, the United States and India. It supplies its customers a range of products, including iron ore semi-finished products.

Cleveland-Cliffs Company Profile

Cleveland-Cliffs Inc, formerly Cliffs Natural Resources Inc., is a mining and natural resources company. The Company is a supplier of iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. The Company’s segments include U.S. Iron Ore and Asia Pacific Iron Ore. The Company is a producer of iron ore pellets, primarily selling production from U.S. Iron Ore to integrated steel companies in the United States, Canada and Mexico. Its Asia Pacific Iron Ore operations are located in Western Australia and consist of its Koolyanobbing operation. The Koolyanobbing operations serve the Asian iron ore markets with direct-shipped fines and lump ore. In addition, the Company operates an iron ore mining complex in Western Australia. In the United States, the Company owned four operational iron ore mines and one indefinitely idled mine.

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