Earnings were released March 3rd. Truthfully, we are not sure what it says. The company is a great asset, undervalued at 60% of 2020 estimated Free Cash Flow, but due to the nature of accounting within the refining industry, Government regulations and non-cash expenses, we need time to process the information. Free Cash Flow is the real measure of progress or failure for Calumet. The verbal conference call suggests that CLMT is in a very good position – the chart also suggest that big money has become accumulators of the shares. Concerning Free Cash Flow, Management says 2021 is looking stronger for Free Cash Flow than 2020 and 2020 was positive. I don’t have the 2020 number for you at this time. Because the stock is reacting positive to the earnings report we wanted to get this sent. We have been especially positive on CLMT since its low price of under $1.00, in the March 2020 sell off. If we sound casual about CLMT’s Free Cash Flow it is because the quarterly fuels business is lumpy as it relates to Free Cash Flow but also extremely strong when looked at on a multi-quarter basis. This is a demonstrated fact. With an expected up-tick in travel, road and air, the outlook for 2022 is strong.
If you own or are considering purchasing shares of CLMT, we recommend listening to the conference call. If you have a perspective that is a let’s “skate to where the puck will be – not to where it was,” you will like the CLMT story.
- LOTM believes CLMT is still attractive at the current price and on weakness.
- Target price is 2X the current price over the next six to eighteen months. Higher prices beyond eighteen months. This is not for traders unless sharp sell downs in price happen that allow entry for trading.
- Valuation: Currently priced at 80% of 2022 projected Free Cash Flow CLMT is simply too cheap. Currently we estimate CLMT is trading at 60% of ttm Free Cash Flow
- Strategy: if you do not own CLMT, dollar-cost-average the same dollar amount regardless of price or market conditions. The cheaper the better. Over the course of eighteen months, we think you will “earn” 50% to 100% return in your investment. If you currently own CLMT watch for market or company stock sell offs to add to the position.
- Conference call link
Calumet will use proceeds from its recent sale / lease back to reduce debt in the next 60-day or less. They have the resources to pay off the full amount of debt maturing in 2022. These events will add to the strengthening of the story for institutional investors and therefore potential catalysts for additional institutional investment into the shares and bonds.
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* An account related to LOTM holds a position in this security.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
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