CLMT* $3.10 – Just for fun, let’s do some napkin math.
CLMT has begun a move higher that is very orderly and appears institutionally driven. We expected more BOOM! But I like orderly with strong volume. Means this is more of a keeper for a bigger move higher. How High? Glad you asked.
- The current run rate of revenue for CLMT on Finviz is $2.8 billion annually.
- Currently CLMT has about $1.4 billion in debt
- There is interest in buying two of CLMT’s divisions. For one division, the expected sale price is between $300 & $400 million. The other division is expected to be around $500 million.
- It can be assumed that much of the sale proceeds will go to debt reduction.
- The current market cap on CLMT is $248 million with a market cap to sale ratio of 0.07 – a very low number. A review of about 55 Specialty Chemical stocks, show that 70% of the Specialty Chemical companies, currently an out of favor industry, trade between 1 and 3-times market cap to sales. If CLMT were to have a 0.10 price to sales and rally to 1 times market cap to sales, you would have a ten-fold increase in the price of the stock from $3.19. Yes, napkin math just for fun.
Unknows are:
Will they sell both divisions? Don’t Know.
How much sales will they lose in a sale of two divisions, should it happen? I could not dig it out, so we’ll see. Free Cash flow is currently strong at above $2.00 per share, so any debt reduction will help free cash flow.
Specialty Chemical products carry a higher profit margin than refined products. How much will profits jump with stronger margins and reduced interest expense from debt reduction? Need to know sales from above and I am not an analyst, but I can say it will improve with confidence. Some one will tell us long before the company becomes over-valued.
If Calumet were to achieve a Market cap of $1 billion, with 77 million shares out, the share price would be $12.98 per share.
Like I said – Just for fun napkin math. We have to enjoy days like this. They don’t happen all that often. Have a good day!
This company is launched, so we’ll not say much more about Calumet publicly. Enjoy. We think it will be a multiyear run but have your exit strategy in your mind.
Have a good day!
Where Value meets Buy Signals!
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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.
Please refer to our web site for full disclosure at www.LivingOffTheMarket.com ZTA Capital Group, Inc.
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