What does it do?
Cleveland-Cliffs is a mature business that earns money by selling finished steel products to manufacturers while controlling the raw materials needed to make them. Unlike many competitors, the company mines its own iron ore and processes it into pellets and specialized iron, which it then melts and shapes into steel sheets. This vertical integration means that when the price of raw materials goes up, Cleveland-Cliffs saves money because it is essentially selling to itself. The company makes its profit on the difference between the cost of mining and manufacturing and the market price of the finished steel it sells to carmakers and builders.
Where does revenue come from?
Most of the money comes from selling flat-rolled steel products to the automotive and manufacturing industries. Steelmaking accounts for over 98% of total revenue, with specialized products like coated and cold-rolled steel bringing in the highest margins. Geographically, nearly all revenue is generated within North America, particularly in the United States and Canada following its acquisition of Stelco.
Revenue Breakdown
Revenue by Geography
Who are its customers?
Cleveland-Cliffs serves roughly 30% of the North American automotive flat-steel market alongside major players in the infrastructure and manufacturing sectors. In the most recent quarter, direct sales to carmakers accounted for $1.5 billion, or 29% of total revenue, while sales to the infrastructure and manufacturing markets brought in $1.4 billion. The company also sells to distributors and converters, who accounted for $1.6 billion in sales, and even sells some raw materials to other steel producers, which contributed $526 million. Because it produces high-end specialty steels used in engines and car bodies, it is a critical partner for nearly every major vehicle manufacturer in North America.
What gives it staying power?
Staying power comes from owning the entire supply chain and holding a dominant position in high-end automotive steel. This integration creates a cost advantage and high switching costs for carmakers who rely on the company's specific, high-tech steel formulas that other mills cannot easily replicate.
Where is it headed?
The company is making a major strategic bet on green steelmaking and electrical steel for the power grid. By investing $1 billion to modernize its plants and focusing on the steel needed for electric motors and transformers, management intends to capture the long-term shift toward a cleaner economy. This move aims to protect the company from future environmental regulations while opening up a new, fast-growing market.
Revenue is beginning to climb back from a cyclical low, with Q2 2026 revenue reaching $5.23 billion. This represents a $300 million increase from the prior quarter as higher selling prices and better demand from carmakers offset earlier maintenance shutdowns.
Cash generation is improving as the business moved back to positive free cash flow during the second quarter of 2026. While the company reported a GAAP net loss of $134 million, the operating cash flow of $230 million shows that the underlying business is generating enough cash to fund its operations and begin paying down debt.
The balance sheet remains leveraged with $7.7 billion in long-term debt, but liquidity is strong at $3.1 billion. Management is focused on reducing this debt to reach a leverage target of less than 2.5 times earnings, which is critical for a business in a cyclical industry like steel.
Cleveland-Cliffs is a cyclical business in the early stages of a profit recovery as it moves past expensive inventory and maintenance outages. It is financially resilient enough to survive a downturn but needs higher steel prices to thrive.
Cleveland-Cliffs does not currently pay a dividend, but it has used billions of dollars in recent years to buy back its own stock. The company spent significant cash on buybacks before shifting its focus to paying down debt following recent acquisitions. While the share count rose over the last five years due to stock issued for major acquisitions like AK Steel and ArcelorMittal USA, management is now prioritizing debt reduction and selective buybacks to return value to owners. An owner should view this as a growth and recovery holding rather than an income holding.
The automotive business remains a steady anchor, contributing 29% of revenue and maintaining high shipment volumes. This steady demand from carmakers provides a floor for the business while other parts of the steel market, like construction, remain more volatile.
Hot-rolled coil steel prices are the most important trigger, as falling prices could quickly erase the recent gains in profit. If benchmark steel prices drop significantly, the company may struggle to generate enough cash to meet its debt reduction goals on schedule.
The North American steel market is a mature $150 billion industry that grows slowly alongside the broader economy. While the market is massive, it is highly sensitive to the price of hot-rolled coil steel, which can swing wildly based on global supply and demand. Cleveland-Cliffs stands as the dominant integrated producer in this market, meaning it is less of a niche player and more of a central pillar for the region's manufacturing base. As long as car production and infrastructure projects continue, the company has a long and stable runway for its products.
The steel market is rationally structured but brutally competitive on price during downturns. Barriers to entry are incredibly high because building a modern steel mill costs billions of dollars and requires years of regulatory approval. This keeps new competitors out, but it means existing players fight hard for every ton of market share. The industry has largely consolidated into four major players, which has led to more disciplined pricing than in previous decades.
Nucor and Steel Dynamics are the most dangerous threats because they use electric arc furnaces that are cheaper to turn off and on when demand shifts. ArcelorMittal and U.S. Steel compete directly for the same high-end carmakers that Cleveland-Cliffs relies on for its best margins. The specific threat from electric furnace rivals is their ability to produce basic steel at a lower cost, which can force prices down across the entire market.
Cleveland-Cliffs is holding its ground as the top supplier to the automotive industry, recently reporting that car-related volumes remain strong. Its grip on this specialized segment is the primary reason it can maintain higher prices than its competitors who sell simpler steel products.
The primary source of protection is a cost advantage built on owning the iron ore mines and processing plants that feed the steel mills. By producing its own iron, the company avoids the price spikes that hurt rivals who have to buy scrap metal or iron ore from others. This integration is proven by the company's ability to maintain a 30% share of the automotive market, where reliability of supply is just as important as price.
The combination of high market share and vertical integration proves that this is a durable business, even though steel is a cyclical industry. While margins fluctuate with steel prices, the company's ROIC tends to outperform its peers during the middle and top of the economic cycle. This suggests that the moat is real and not just a result of a lucky year in the markets.
The moat is stable as the company deepens its relationship with carmakers and moves into the electrical steel market. While the industry is mature, the company's control over its raw materials ensures that it will remain a low-cost leader for decades to come.
Adjusted EBITDA tripled quarter-over-quarter in Q2 2026 despite maintenance outages.
Debt reduced significantly after spending billions to acquire AK Steel and ArcelorMittal USA.
CEO Lourenco Goncalves holds over $100M in stock, aligning his wealth with shareholders.
Capital Allocation Track Record
Lourenco Goncalves is a proven and aggressive leader who has transformed the company through bold acquisitions that many thought were too risky. His strategic judgment to vertically integrate the business has been vindicated by the company's ability to remain profitable and gain share in the automotive sector while rivals struggled. He is known for a blunt, no-nonsense communication style that prioritizes domestic manufacturing and the strength of the company's balance sheet.
The thesis is heavily dependent on Lourenco Goncalves, though the recent promotion of Celso Goncalves Jr. to President suggests a clear succession plan. While the board is independent, the CEO’s strong personality and vision are the primary drivers of the company's strategy, which creates some key-person risk. However, the deep operational experience of the broader executive team and the long-term nature of the company’s labor contracts provide a stable foundation if leadership were to change.
We expect revenue to grow from $21.5B in FY2026 to $23.2B in FY2031 (~2% CAGR), with EPS growing from $-0.18 to $2.35. Revenue grows as the North American flat-rolled steel market recovers from a cyclical trough while the company maintains its leading share in automotive supply. Margins expand as higher production volumes allow the company to spread fixed costs across more tons of steel while moving past expensive inventory. EPS grows faster than revenue because the company is returning to profitability and reducing its share count through consistent buybacks. Operating margin expected to reach ~7% by FY2031.
Dominance in electrical steel market for electric vehicles and power grids. As the power grid and EV market grow, the company’s lead in grain-oriented electrical steel becomes a major profit driver.
Margin expansion through the $1 billion Middletown Works modernization. Replacing old furnaces with newer, DOE-funded technology will significantly lower production costs and carbon taxes.
Debt reduction and share buybacks boost earnings per share. Using cash to pay down high-interest debt and shrink the share count will amplify returns for long-term owners.
A prolonged collapse in hot-rolled coil steel prices below $800. If steel prices stay low for several years, the company will struggle to pay down debt and fund its plant upgrades.
Automotive manufacturers shift away from specialized steel toward aluminum or composites. While unlikely in the near term, a major shift in car design would threaten the company's most important and profitable market.
Failure to successfully integrate the Stelco acquisition and capture planned savings. Large mergers in the steel industry carry high operational risks that could distract management and drain cash.
Below is our estimate of current and future fair value, with detailed reasoning and assumptions. Fair value is a judgment, not a fact, and other analysts will likely land on different numbers. Use it as one data point in your research, and apply your own discretion in any investing decision.
We value Cleveland-Cliffs based on what the company will earn once its current transformation is finished in five years. This fits the business because the steel industry is currently in a low point, and valuing it only on today's losses would ignore the massive investments they are making in new, high-tech plants.
Our $22 fair value comes from taking the $2.35 per share we expect the company to earn in 2031 and multiplying it by 15. This gives us a future stock price of $35. we then discounted that $35 back to today's value at a 10% rate to account for time and risk. We chose a 15x multiple because it is a slight premium to rivals like Nucor (12x) and Steel Dynamics (13x), reflecting Cleveland-Cliffs' dominant position in the specialized automotive steel market.
Priced on next year's earnings instead, using the 10x multiple that steel companies typically trade for, we get a value of $7.60 — which is significantly lower than our main answer. The $7.60 represents what the company is worth if you only look at the immediate recovery in 2027. However, we trust the $22 long-term value more because Cleveland-Cliffs is a highly cyclical business currently emerging from a loss, and the real value is in the 5-year shift toward specialized products that the one-year math misses.
The biggest risk is a deep drop in steel prices that stays low for several years. This would choke off the cash needed to pay down the company's $7.7 billion debt pile, likely forcing the market to pay much less for every dollar of profit. If steel prices stay depressed, the fair value would likely drop toward $8 as the company struggles to fund its modernization projects. Watch for "Hot-Rolled Coil" prices dipping below $850 per ton.
Bear case ($8): Hot-rolled coil steel prices fall and stay below $800 per ton through 2027; or Net debt remains above $7 billion as modernization costs at Middletown Works run over budget.
Bull case ($35): The POSCO partnership is finalized with terms that significantly increase cash profits by 2028; or Cleveland-Cliffs captures over 40% of the North American electrical steel market for power grid upgrades.
Clearthesis wrote this report from 44 sources, including SEC filings, analyst estimates, industry research, and recent news.
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© 2026 Clearthesis.ai · Report generated on September 28, 2026
This is an AI-generated analysis for informational purposes only and does not constitute financial advice. Data and analysis may not reflect recent developments if viewed significantly after the generation date. Always conduct your own due diligence before making any investment decisions.