"Can"-Do Spirit Tested at Ball

Ball Corporation (BLL) reported Q108 EPS of $0.80, above our estimate of $0.67, due to better performance in its Metal Food & Household Products (Americas) segment, modest improvement in the Plastic Packaging (Americas) segment, continued sales and earnings growth in the Metal Beverage packaging (Europe) segment and share repurchases.

Going forward, Ball's earnings should benefit from strong packaging fundamentals amid growing beverage can demand as well as its cost containment efforts through closing non-core operations. Nevertheless, the Metal Food and Household Products Packaging (Americas) unit is suffering from continued lower food can volumes. Also, in the company's PET business, soft prices and low volumes are limiting margin expansion. We reiterate our Hold recommendation on shares of BLL.

The long-term prospects of Ball Corporation appear bright, given the positive outlook of its packaging operations. The management's decision to invest in businesses that earn returns in excess of the cost of capital reconfirms our positive earnings outlook. Core business growth, coupled with strategic buyouts, is benefiting the North American packaging business.

Going forward, the management plans to increase the capacity of Ball's Germany and Poland plants, by a total of half billion cans in 2008 and also stated that it might increase capacity further as required by the strong demand.

However, food can volumes remain low, and soft prices and low volumes are limiting margin expansion in the PET business. In our view, the company's valuation adequately reflects the company's near- to medium-term growth prospects. Our target price of $48.50 is based on around 12.8x our 2008 EPS estimate of $3.78.

Cleveland-Cliff Standing Tall

Rising prices and strong demand are pushing Cleveland-Cliff, Inc.'s (CLF) performance. Robust industrial growth in China has triggered demand for steel, resulting in higher demand for iron ore. The company's portfolio of established and recent iron ore and metallurgical coal assets positions it to capitalize on global industry dynamics in 2008 and beyond. We believe the strong commodity price regime should significantly boost revenues for Cliffs. As a result, we rate the shares a Buy with a target of $120.00.

Cleveland-Cliffs is the largest producer of iron ore pellets in North America and is also a major supplier of metallurgical coal to the global steel-making industry. Prices for iron pellets are moving up in 2008. Cliffs has incorporated reported settlement increases of 65% for iron ore fines and 87% for iron pellets into its estimates for pricing projections.

For 2008, Asia-Pacific Iron Ore segment's expected production volume is 7.8 million tons and sales volume is 8.0 million tons. The company expects Asia-Pacific revenue per ton to be $102. This estimate assumes 80% and 97% increase in the 2008 international settlement price for fines and lump respectively.

In the North American iron ore segment, Cliffs said that it expects a 34% increase in adjustment factors related to steel pricing, using an annual average hot band steel price of $750 per ton at certain customer's steel-making facilities. This is an increase on the company's previous guidance of 25% and $700 per ton.

With regard to North American iron pricing for 2009, Cliffs commented that the average realized price per ton would be approximately $107 assuming there is no change in World Pellet Prices in 2009 and no changes in producer price indices or steel pricing.