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Calumet Specialty Products Partners LP Message Board

  • wareham2620 wareham2620 Jul 18, 2008 11:38 AM Flag

    GOLDMAN SACHS 7/16/08

    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

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