Calumet Specialty Products Partners: Investing In Sustainable Aviation Fuel
Several Catalysts On The Horizon In 2024 Should Lead To A Higher Price
Summary
Calumet Specialty Products Partners is an MLP with a market cap of $1.4B. They have two segments, Specialty Products and Montana Renewables.
The Montana Renewables segment is uniquely positioned to capitalize on growing demand for sustainable aviation fuel, and cashflow from the segment is set to increase dramatically over the next couple years.
Management is planning to convert to a regular C-corp by the middle of 2024. This should allow new investors to buy Calumet and I think it will lead to a higher price in the second half of the year.
Another catalyst we could see this year is a potential loan from the Department of Energy, which would materially improve the balance sheet.
The CEO bought out of the money calls in November 2023, which is unusual to say the least, and there has been other insider buying in recent months as well.
I think the risk/reward is very attractive today, and I think units will be trading at much higher levels in the next 12 months.
Calumet Specialty Products Partners CLMT 0.00%↑ has been on my watchlist for awhile. One of the guys from an investor group chat has been telling me to take a closer look at the company as often as I have been bugging him on Warrior Met Coal HCC 0.00%↑. He has owned units since 2020 (I’m not going to ask his cost basis, but he said he started buying below $3.00), and he bought more recently around $18.00. I did a cursory look at the company a couple months ago, but a recent Business Brew podcast prompted me to look at the broader sector and Calumet.
There is a lot of good information out there on Calumet, but the annual letter from Crossroads Capital is what convinced me I had to own some. It’s a detailed breakdown of Calumet and the Montana Renewables segment, which should give investors plenty of information to get familiar with the company and its operations. If you are interested in the company and have the time to read it, I would strongly recommend it. I have dug through the financials and other good information out there on Calumet, but I try to distill my posts on each stock down to the most important information without leaving out any material details.
Calumet has its earnings call next week on February 23, 2024, where management will probably discuss many of the things I lay out below. I was tempted to wait to write this post until after earnings, but I don’t think it will materially change the bullish thesis. I’m looking forward to the update, and if anything material does change, I’ll be sure to write an update about it. For now, let’s get into Calumet.
Overview
Calumet is a Master Limited Partnership with a market capitalization just under $1.4B. I wrote a post a while back on the basics of MLPs and how they are different from regular stocks, but investors interested in buying units should be aware that buying Calumet today means they will have to deal with a K-1 tax form for the 2024 tax year. With that out of the way, let’s get into Calumet’s main operating segments.
Specialty Products & Performance Brands
Calumet’s first segment is focused on making a variety of products. This includes lubricants, solvents, asphalt, and waxes for example. One of the things that the Crossroads letter points out is that this segment is less cyclical than a typical refinery or chemicals plant. This isn’t going to be a huge growth engine for Calumet moving forward, but it should be a relatively stable operating segment that shouldn’t require huge incremental investment. If I had to guess, the Specialty Products segment will probably do $250M per year in EBITDA, give or take $50M depending on a variety of factors.