Calumet Inc (CLMT)
I will start with the 90 second pitch à la Bill Miller, the whole analysis can be found afterwards.
I think it's a buy for the following five reasons:
Leading position in the rapidly growing Sustainable Aviation Fuel (SAF) market, with production scaling from 50 million gallons in 2024 to 150 million gallons by 2026.
Secured $1.44 billion DOE loan for expansion without equity dilution, enabling debt reduction and capacity growth.
Strategic partnerships and long-term offtake agreements ensuring demand stability and market penetration.
Geographic advantage with its Montana facility serving key SAF markets efficiently.
Stable cash flow from the specialty chemicals division, generating $250 million in mid-cycle EBITDA annually.
The stock is trading at $20.92. I think it's worth $45+ per share based on a conservative sum-of-the-parts valuation. Here's why:
Montana Renewables valued at $5.5 billion (11x $500M projected 2026 EBITDA)
Specialties Segment valued at $2 billion (8x $250M mid-cycle EBITDA)
Risks include:
Feedstock price volatility
Dependency on federal tax credits set to expire in 2027
Execution risks in scaling production
That's it.
The long pitch…
Executive Summary
Calumet Inc (CLMT) is emerging as a leader in the renewable energy market, driven by its Montana Renewables (MRL) division.
Positioned to scale sustainable aviation fuel (SAF) production from 50 million gallons annually in 2024 to 150 million gallons by 2026, CLMT is leveraging premium SAF pricing, robust regulatory incentives, and disciplined management execution to create shareholder value.
Supported by a $1.44 billion DOE loan, CLMT is reducing debt while expanding capacity without equity dilution.
The specialty products segment adds stability, generating mid-cycle EBITDA of $250 million annually.
With a conservative base case valuation exceeding $45/share and a bear case floor of $20/share, CLMT offers an attractive risk-reward profile for long-term investors.
Company Overview
Calumet Inc operates two primary segments: specialty chemicals and renewable fuels. MRL, a transformative addition, focuses on producing SAF, renewable diesel (RD), and green hydrogen. SAF, critical to aviation decarbonization, reduces lifecycle emissions by up to 90%. The global SAF market is projected to reach 3 billion gallons annually by 2030, with CLMT targeting a 150 million gallon run rate by 2026.
The Great Falls, Montana, facility offers geographic advantages, serving high-demand SAF markets such as California, Washington, and Canada (Pathways to Commercial Liftoff: Sustainable Aviation Fuel, US Department of Energy, 2024).
As noted by management, “Montana Renewables is uniquely positioned to deliver premium SAF efficiently to its key markets, leveraging infrastructure and geographic strengths” (Q3 2024 earnings call transcript).
Source: Bloomberg
Investment Thesis
SAF Market Leadership
Montana Renewables (MRL) represents one of the most significant SAF production facilities in North America. Management has already achieved a 50 million gallon run rate in 2024 and anticipates scaling to 150 million gallons by 2026.
As described by management during the Q3 2024 earnings call: “The second reactor and associated infrastructure have been fully de-risked, ensuring scalability and operational continuity”. By 2028, CLMT plans to achieve a total renewable fuel capacity of 330 million gallons annually.
SAF pricing advantages include a $1.50/gallon premium over renewable diesel, driven by strong corporate demand and regulatory mandates. This premium is sustainable, with management emphasizing: “Our SAF contracts ensure long-term margin stability through fixed premiums over RD” (Q3 2024 earnings call transcript).
Financial Strength via Deleveraging
The $1.44 billion DOE loan provides critical funding for CLMT's growth. With $778 million allocated for refinancing existing debt, the company reduces interest expenses by $79 million annually.
The loan structure—a 15-year term with a Treasury + 3.8% rate—positions CLMT for financial stability and growth without equity dilution (DOE Loan Commitment Announcement, 2024).
Greenblatt’s principle of maintaining a strong balance sheet during growth phases is evident here: “A strong financial foundation allows companies to capitalize on high-probability growth opportunities while minimizing downside risk” (Joel Greenblatt Course Notes on Capital Allocation, Columbia, 2005).
This funding ensures CLMT’s ability to expand without compromising shareholder equity.
Specialty Segment Resilience
The specialty chemicals division generates $250 million in mid-cycle EBITDA annually, providing stable cash flow.
This segment acts as a counterbalance to the cyclical nature of renewable fuels. Management noted: “Our specialty segment continues to outperform, driven by strong demand for high-margin specialty products like lubricants and waxes” (Q3 2024 earnings call transcript).
Growth Catalysts
Expanding SAF Production Capacity
CLMT is tripling its SAF production capacity from 50 million gallons in 2024 to 150 million gallons by 2026, positioning itself as a dominant player in a $7 billion SAF market.
Management has emphasized that “the second reactor and supporting infrastructure are already paid for, de-risking capacity expansion” (Q3 2024 earnings call transcript).
By 2028, additional upgrades, including renewable hydrogen production, will further enhance efficiency and profitability
Regulatory Tailwinds and Incentives
SAF production benefits from federal tax credits under the Inflation Reduction Act (IRA), reducing costs by $1.25-$1.75 per gallon through 2027.
Additionally, mandates like California’s requirement for 20% SAF by 2030 provide long-term demand visibility.
These regulations ensure sustained profitability for SAF producers like CLMT.
Strategic Partnerships
Long-term offtake agreements with partners like Shell secure demand stability. This stability allows CLMT to focus on operational execution while monetizing incremental capacity.
Management emphasized: “Strategic partnerships enable us to focus on operational efficiencies while ensuring a steady market for our SAF output” (Q3 2024 earnings call transcript).
Partnerships also help penetrate global markets, extending CLMT’s reach beyond North America
Geographic Advantage
Located in Montana, CLMT’s Great Falls facility serves key SAF markets such as California, Washington, and Canada.
Its logistical efficiency reduces transportation costs and enhances profitability, a competitive edge noted by management: “Our location is ideal for supplying high-demand markets efficiently” (Q3 2024 earnings call transcript).
Valuation and Upside
Using a sum-of-the-parts valuation methodology:
Why we use EV/EBITDA for valuation?
The EV/EBITDA multiple is ideal for:
Capital-intensive industries:
Both renewable fuels and specialty chemicals are capital-intensive, and EV/EBITDA normalizes differences in capital structure.Cross-sector comparability:
The metric allows comparison across industries with different accounting policies for depreciation and amortization.Excluding non-core factors:
EV/EBITDA focuses on operational profitability, excluding one-off or non-operational items that could distort valuation.
Montana Renewables: $5.5 billion valuation based on an 11x EBITDA multiple for $500M projected 2026 EBITDA .
This multiple is justified due to:
High-growth industry:
MRL operates in the sustainable aviation fuel (SAF) space, a rapidly growing market fueled by regulatory incentives (e.g., tax credits, mandates) and demand for aviation decarbonization. Growth potential warrants a premium valuation.First-mover advantage:
MRL is positioned as one of the largest SAF producers, with a plan to scale production from 50 million gallons in 2024 to 150 million gallons by 2026, giving it a competitive edge.Comparable industry multiples:
The renewable energy and clean fuel industries generally trade at higher EV/EBITDA multiples (10-14x), reflecting their growth profiles and premium positioning.Predictable revenue streams:
MRL benefits from SAF's $1.50/gallon premium over renewable diesel and long-term offtake agreements with major buyers like Shell, supporting consistent profitability.
Specialties Segment: $2 billion valuation at an 8x multiple for $250M mid-cycle EBITDA.
This multiple reflects:
Stable but mature business:
The specialty products division generates approximately $250 million in mid-cycle EBITDA annually. While reliable, its growth trajectory is slower compared to the high-growth renewables segment.Market comparisons:
Specialty chemicals and industrial products businesses typically trade in the 7-9x EV/EBITDA range, reflecting their steady cash flows and mature market position.Operational integration:
The specialty segment benefits from vertical integration and established customer relationships, but it lacks the transformative growth potential of MRL.
This yields a base case valuation of $45+/share with a potential upside from further SAF tax credits, feedstock cost reductions or higher EV/EBITDA multiple ($70+/share)
Bear Case: If SAF tax credits expire and production scaling is delayed, EBITDA could decline by 30-40%, reducing the valuation to $20/share.
Risks and Mitigations
Feedstock Volatility
SAF production relies heavily on fats, oils, and greases (FOG), which are subject to supply constraints and price fluctuations.
Rising competition for FOG could pressure margins. However, CLMT is proactively diversifying its feedstock base, including investments in waste-based materials and second-generation feedstocks.
This strategic shift reduces dependence on traditional inputs while aligning with federal incentives favoring advanced biofuels
Policy Dependency
Federal tax credits underpin SAF profitability and are set to expire in 2027.
While this poses a medium-term risk, bipartisan support for renewable energy and aviation decarbonization reduces the likelihood of abrupt policy changes.
Management is also preparing for a potential post-2027 environment by focusing on operational efficiencies and cost leadership
Execution Risks
Scaling SAF production from 50 million to 150 million gallons by 2026 requires flawless execution.
Delays in integrating new reactors or inefficiencies in supply chain management could hinder progress.
Management’s proven track record of meeting milestones, such as achieving the initial 50 million gallon run rate ahead of schedule, instills confidence in their ability to execute.
Market Competition
The SAF market is attracting significant investment from major players, increasing competitive pressures.
CLMT mitigates this risk through its first-mover advantage, long-term contracts, and geographic proximity to key markets
Insiders and Major Holders
CEO Louis Borgmann has been increasing his holdings through direct market purchases and retaining shares from exercised options. He currently holds 161,413 shares, valued at approximately $3.4 million.
Source: Bloomberg
There are 8,092,654 options outstanding, issued under the company’s Long-Term Incentive Plans (LTIP):
2006 Plan: 783,960 options
2013 Plan: 508,654 options
2015 Plan: 3,400,000 options
2018 Plan: 2,000,000 options
2022 Plan: 1,400,000 options
During the 2024 corporate conversion, all existing options and restricted stock units (RSUs) were assumed by Calumet, Inc., ensuring prior incentives remained intact. These options are tied to performance metrics that align management’s goals with shareholder value creation, including:
Primary Metric: Adjusted EBITDA, focusing on operational profitability and sustainable growth.
Additional Metrics: Gross Profit per Barrel (operational efficiency) and Net Income per Unit (shareholder returns).
Key Drivers: SAF production scaling milestones, cost optimization, and debt reduction via the $1.44 billion DOE loan.
Awards vest upon achieving specific targets, such as consistent EBITDA thresholds or milestones like SAF production growth.
Additionally, 2,000,000 warrants were issued as part of the 2024 restructuring, with a $20 strike price and a three-year maturity, incentivizing share price growth above $20. Key recipients include management and strategic partners such as The Heritage Group.
Tyro Capital Management, recently backed by a large seed from David Einhorn’s Greenlight Capital, allocated approximately 7% of its Q3 2024 13F holdings to CLMT, reflecting strong institutional interest in the stock.
Conclusion
Calumet presents a unique and transformative investment opportunity, with its Montana Renewables (MRL) division leading the charge in the sustainable aviation fuel (SAF) market.
By combining high-margin SAF production with a resilient specialty products segment, CLMT has crafted a business model that thrives on growth while mitigating downside risks.
Management’s execution capabilities, supported by favorable federal incentives and strategic partnerships, position CLMT for robust cash flow generation and valuation appreciation.
Trading significantly below its intrinsic value of $45+/share, CLMT offers an asymmetric risk-reward profile.
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