Morgan Stanley analysts changed Cleveland-Cliffs’ (NYSE:CLF) rating from Overweight to Equalweight, adjusting the price target to $20 from $21.50.

The analysts explained the downgrade acknowledging Cleveland-Cliffs’ potential for a strong free cash flow (FCF) yield in the upcoming years due to the absence of significant capital expenditure projects.

Additionally, a considerable portion of the company’s annual contracts are fixed-price, which is expected to help maintain its overall pricing in the face of anticipated declines in spot steel prices in 2024.

However, Cleveland-Cliffs’ significant exposure to the automotive sector, which is projected to underperform this year after a robust 2023, prompts concerns. Considering the stock’s approximately 23% increase since the beginning of the fourth quarter of 2023, buoyed by successful price increases and a renewed focus on share buybacks by the management, the analysts believe the stock now lacks substantial upside potential relative to the new price target, leading to the adjustment in rating.

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