We came across a long thesis on Calumet Inc (NASDAQ:CLMT) on ValueInvestorsClub by AAOI. In this article we will summarize the bulls’ thesis on CLMT. The company’s shares were trading at $20.13 when this thesis was published, vs. closing price of $22.00 on Jan 13th.
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Calumet Inc (NASDAQ:CLMT) specializes in producing a wide range of specialty products, such as base oils, specialty oils, solvents, esters, waxes, asphalt, and heavy fuel oils. The company formulates, manufactures, and markets branded specialty products tailored to meet the needs of diverse consumer-facing and industrial markets.
The bull thesis is primarily based on the idea that markets do not fully price in the potential impact of a $1.44 billion loan from the Department of Energy (DoE) announced in mid-October 2024 – the stock experienced a “sell the news” price action during the day, while the author argues that the loan announcement is the first step in a series of events that will likely lead to a significant repricing of the stock to the upside. First, the author believes that the size of the loan exceeded previous street expectations, which should result in a higher capacity of the Sustainable Aviation Fuel (SAF) plant announced to be built. According to calculations, the higher loan capacity will allow CLMT to realize from $120 million to $300 million higher annual EBITDA than the initial street scenario, which translates into $1.2b to $3.0b higher Enterprise Value (EV), or from $15 to $35 higher equity value per share. Second, the author argues that the positive impact to be realized from the loan is highly certain and is immune to Trump administration risk, because the first tranche is expected to be disbursed in 4Q 2024, well before the change in government administration, and the project will likely be finished by early 2026. Finally, interest savings alone from the DoE loan is $80 million annualized, which capitalized at 8.0x multiple equates to $650 million or $7+ per share, which is not yet priced in.
With that being said, the author believes that the market significantly misprices the potential benefits arising from the DoE loan; a $55 to $70 target price range is given for the stock, which implies from 150% to 218% upside from the current market price.
While we acknowledge the potential of CLMT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CLMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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