On Mar 28, Zacks Investment Research upgraded Calumet Specialty Products Partners L.P. (CLMT) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Indianapolis-based Calumet 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 buyout of San Antonio, Texas, refinery assets from another partnership NuStar Energy L.P. (NS) for about $115 million.
Importantly, Calumet has raised distributions by approximately 38% over the past two years and currently dishes out an impressive 7.0% yield. On Jan 14, the producer of specialty hydrocarbons in North America hiked its quarterly cash distribution to 65 cents per unit ($2.60 per unit annualized), representing an increase of approximately 4.8% sequentially and 22.6% year over year.
Units of Calumet have soared in 2013, but remain cheap as earnings estimates also went up. In addition to trading around 11.3 times forward estimates (under the S&P 500 average of 14.6), the partnership has a price-to-book (P/B) ratio of 2.5. Moreover, a price-to-sales (P/S) ratio of just 0.5 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 0.32, a 68% discount to the benchmark of 1 for a fairly priced stock.
Calumet’s consistent and improving financial policy, together with a high distribution coverage and low valuation metrics means that the partnership is expected to significantly outperform the broader U.S. equity market over the next one to three months.
Other Stocks to Consider
In addition to Calumet, there are certain other downstream energy operators like PBF Energy Inc. (PBF) and Marathon Petroleum Corp. (MPC) that offer value and are worth buying now. Both these firms sport a Zacks Rank #1 (Strong Buy).
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