It's not too often one can find a stock with big earnings growth
and a high yield. But in the case of
Calumet Specialty Products Partners L.P.
), a current year earnings growth projection of 145% coalesces with
an 8% distribution. Yet, it also exhibits low valuation metrics,
with a forward P/E of just 9.2 and a price-to-sales (P/S) ratio as
low as 0.4.
Presently trading near its 52-week high, units of this Zacks #1
Rank (Strong Buy) have climbed 35% during the past three months.
With accretive acquisitions, widened crack spreads and a PEG ratio
of less than 1.0, this producer of specialty hydrocarbons in North
America looks like a compelling value play with a potential for
Strong 2Q, Jump in DCF
Calumet Specialty Products reported second quarter earnings per
unit of $1.03 on August 1, beating the Zacks Consensus Estimate of
53 cents by 94% and the year-ago earnings of 19 cents by 442%.
Revenues of $1,087.0 million were up 48% year over year from $733.8
million, and also surpassed the Zacks Consensus Estimate of $896.0
million. Results were driven by high crack spreads and contribution
from last year's 45,000 barrels-per-day (Bbl/d) Superior
(Wisconsin) refinery purchase from El Dorado, Arkansas-based Murphy
Oil Corp. (
For the three months ended June 30, total volumes for the Specialty
and Fuel Products segments rose 25% and 83%, respectively.
Importantly, distributable cash flow (DCF) jumped approximately
274% year over year to $94.9 million, which bodes well for future
Montana Refinery Acquisition: Positive Catalyst
Calumet Specialty Products has a proven record of growth through
acquisitions. The partnership has been aggressive in purchasing
assets that help support its cash flow stability and complements
its business. The latest in this series is the proposed buyout of a
small refinery in Montana for about $120 million. The transaction -
expected to close in the fourth quarter - will enhance Calumet's
refining capacity by a further 9,800 Bbl/d and be immediately
accretive to its DCF.
Generous Distribution Yield
The partnership has raised distributions by approximately 30% over
the past four years and currently dishes out an impressive 7.7%
yield. On July 20, Calumet Specialty Products hiked its quarterly
cash distribution to 59 cents per unit ($2.36 per unit annualized),
representing an increase of 5% over the previous payout.
Solid Earnings Momentum
Following the second quarter earnings beat, the Zacks Consensus
Estimate for 2012 is up 17 cents (or 5%) to $3.34 in the past 30
days. Given the $1.36 per unit earned in 2011, the projected growth
rate stands at an astounding 145% for 2012.
Units of Calumet Specialty Products have soared in 2012, but remain
cheap as earnings estimates also went up. In addition to trading
around 9.2 times forward estimates (under the S&P 500 average
of 14.3), the partnership has a price-to-book (P/B) ratio of 1.9.
Moreover, a price-to-sales (P/S) ratio of just 0.4 suggests that
the stock is still undervalued. (A P/S ratio lower than 1.0, a P/E
below 15.0 and a P/B ratio under 3.0 generally indicate value). The
PEG ratio comes in at a miniscule 0.27, a 73% discount to the
benchmark of 1 for a fairly priced stock.
Market Performance & Technicals
Since June, Calumet Specialty Products units have been in an upward
channel, rising approximately 40% and setting a new 52-week high in
the process. Following the second quarter earnings beat in August,
this downstream operator has also been comfortably outperforming
the S&P 500. With the expectation for growth in earnings and
distribution, the stock looks poised to keep the winning streak
Calumet Specialty Products offers the rare combination of both
value and growth in the specialty energy sector.
Indianapolis-based Calumet Specialty Products Partners L.P. is a
publicly traded master limited partnership that is engaged in the
production of customized lubricating oils, solvents, waxes and
asphalt from crude oil and other feedstock. The partnership also
makes fuel products like gasoline, diesel and jet fuel.
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