Jul 16, 2008 Calumet Specialty Products (CLMT): Calumet's 2Q2008 $0.45 distribution reinforces our positive outlook NEWS: Calumet Specialty Product Partners (CLMT) declared a 2Q08 quarterly distribution of $0.45/unit – inline with our expectations, prior quarter levels, and its minimum quarterly distribution level. ANALYSIS: CLMT’s unit price has significantly underperformed YTD on concerns that it would be unable to remain in compliance with its debt covenants in the current challenging operating environment, with noncompliance potentially resulting in a further distribution cut or suspension. While not implicitly disclosed, we view CLMT’s announced $0.45 2Q08 distribution confirmation that it remained in compliance for 2Q08. We expect 2Q08 to represent “trough EBITDA” for CLMT given an improving operating environment for the Specialty segment and full quarter contribution of the Shreveport refinery expansion in 3Q08, resulting not only in a reduced likelihood of balance sheet concerns but also potential for distribution increases by year-end. We maintain an out-of-consensus Buy rating with a $22 12-month yield-based target price. Risks to our view include further spikes in crude oil prices and continued market turmoil disrupting sector valuations. IMPLICATIONS: We expect this news to be a positive catalyst with a near-term revaluation to a normalized yield of 10-11% (40-54% upside potential from current levels), consistent with other higher-beta MLPs. CLMT’s current 15.4% yield overly discounts the risk involved in the partnership as cash flows from Penreco and the Shreveport expansion are coming online at rates exceeding our initial expectations. The Fuel segment continues to benefit from its $12+/barrel significant crack spread hedges. Also, despite the volatile crude markets, the Specialty segment’s performance is improving as competitors drop out of the market, oversea demand increases, and Calumet continues to increase prices and hedge feedstock costs. Our price target and estimates are unchanged. The Goldman Sachs Group Inc. does
As of yesterday, Yahoo was reporting the following earnings season results for the last quarter: 45 companies reported surprises on the upside, 7 met expectations and 20 missed on the downside, so, upside surprises are better than 2:1 over missed earnings reported. Fingers for CLMT (and a several others) remained croxxed.