Cliffs Natural Resources Inc (CLF): A CEO Exit Could Mean This Iron-Ore Producer Is in Play

After backing out roughly $4 billion in debt, a minimum reasonable deal equity value looks to be around $27 per share; an offering price, without including any value for the coal assets, that’s good for the buyer and may be acceptable to the shareholders.

What’s Cliffs’ worth without a deal?

Though there is some evidence Cliffs Natural Resources Inc (NYSE:CLF) could be in play, speculating on a potential takeover is usually a poor investment strategy. Since the chance of a deal occurring is low, underlying valuation support is necessary to make it an actionable idea.

Cliffs Natural Resources Inc (NYSE:CLF) probably holds adequate value though there are significant operating risks and holding period issues to consider. By using a cash earnings times a capitalization multiplier valuation method, the company’s fair value looks around $30 a share based on an average industry multiple of 8 times; this with average estimated revenue of $5.1 billion and $490 million in earnings at a 9.6% profit margin. These expectations may seem moderate compared to Cliffs’ 2012 revenue of $5.9 billion, cash earnings of $627 million and 10.6% profit margin, or 2010 results of $4.4 billion in sales, cash earnings of $860 million and a margin of 19.5%.

Conclusion

Cliffs Natural Resources Inc (NYSE:CLF)’ CEO retiring, other top executives leaving, an industry reorganizing, and a reasonably cheap stock; all of these factors may just be a meaningless coincidence or they may indicate a company in play. Only time will tell, but Cliffs does seem a very interesting situation and could be a reasonable speculative consideration.

Bob Chandler has a long position in Cliffs Natural Resources. The Motley Fool owns shares of ArcelorMittal.

The article A CEO Exit Could Mean This Iron-Ore Producer Is in Play originally appeared on Fool.com.

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