KeyBanc says Buy Cleveland-Cliffs (CLF)

Yesterday KeyBanc said buy Cleveland-Cliffs (NYSE:CLF) before today's 11% share decline.  CLF is down today due to their deal to buy Alpha Natural for $10 billion in cash and stock.  Mastery says...

KeyBanc initiated coverage on Cleveland-Cliffs yesterday with a Buy rating and $180 price target.

The firm sets a 2008 EPS estimate of $6.50, a 2009 EPS estimate of $14.75 and 2010 estimate of $17.35.

The firm expects the stock to sustain its significant outperformance beyond 2009. The firm also notes the stock has pulled back from recent highs, which they believe has created an attractive entry point for investors.

The firm views CLF as a high-quality growth opportunity in the global steelmaking raw materials space and a Company with the potential for significant margin and valuation enhancement in 2009 and beyond.

More on the Alpha Natural deal from MarketWatch.com:

The offer is valued at $128.12 a share and represents a premium of 35% to Alpha Natural's closing price Tuesday of $94.92, the companies said.

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The merger comes on the heels of rising demand and prices for coal, with overseas markets continuing to gain traction.

"This transaction a good strategic fit for Cleveland Cliffs, as it gives them a stronger presence in the very tight metallurgical coal market and compliments their iron ore business," said Brian Hicks, co-manager of the U.S. Global Investors' Global Resources Fund. "Longer-term this consolidation may make Cliffs an even more attractive target for a steel producer looking to vertically integrate their operations."
The combined company will be renamed Cliffs Natural Resources, with current Alpha shareholders controlling around 40% of its stock. The deal is expected to close by the end of 2008.

"By combining our companies' complementary operations and management capabilities, we will be well positioned to meet the world's increasing demand for raw materials," said Cleveland-Cliffs' CEO Joseph Carrabba.

"This transaction is financially compelling for Alpha's stockholders, who will benefit from enhanced value today alongside growth opportunities in the future," said Alpha's CEO Michael Quillen.

J.P. Morgan Securities advised Cleveland-Cliffs, while Citigroup advised Alpha Natural Resources.

Fellow Masters, with CLF shares at $99, this could make for a decent entry point.  You make the Call.