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Summary

  • High yielding refiner Calumet Specialty Product Partners continues to deliver stellar results and recently blew through quarterly earnings expectations.
  • The latest earnings beat has resulted in analyst upgrades and a nice rise in the stock of this limited partnership.
  • The refiner also has other catalysts that should substantially boost earnings and distributable cash flow in the years ahead.

One of the highest yielding plays is my income portfolio is Calumet Specialty Product Partners (NASDAQ:CLMT). It is also one of the larger positions in that section of my portfolio. The company is expanding, is delivering solid results, and I believe the market is undervaluing the positive impact the company will receive as new projects are completed and start to contribute to the bottom line. This energy partnership delivered earnings results the other day that should inspire further confidence among its stakeholders.

Company Overview:

Calumet Specialty Products Partners is organized as a limited partnership and produces specialty refined hydrocarbon products in several facilities with a ~160,000 barrels per day of capacity.

Earnings Report Highlights:

  • Earnings per unit came in at 50 cents a share, crushing estimates calling for approximately a dime a share.
  • Adjusted EBITDA came in at $82.7 million during the first quarter 2014. This compares to $53.2 million during the prior quarter and $80.0 million in the prior-year period.
  • Distributable Cash Flow (DCF) for the first quarter 2014 was $49.4 million, compared to $26.4 million in the prior year period.
  • Distribution coverage continued its improvement and approached 1.0x during the first quarter 2014 coming in at .94x.

Earnings Upgrades:

Predictably, these results have already resulted in a couple of analyst upgrades. Howard Weill initiated the shares as an "Outperform" after earnings and put a $33 a share price target on Calumet. Credit Suisse also moved its rating from "Neutral" to "Outperform" on the shares at the same time. Its analyst also noted that "CLMT is in the process of completing several large projects with the potential to double EBITDA by 2016", something I have repeatedly commented on in my articles on Calumet.

Outlook:

Look for some additional upgrades on Calumet in coming weeks as analysts digest its stellar quarterly results and as the company presents at a couple of well-attended investor conferences in May. Even with the recent rise of the stock, CLMT still provides a distribution yield of 9.6%.

In addition, as new projects come on line and a recent acquisition gets integrated into Calumet's product offerings; both earnings and EBITDA should increase substantially. Calumet basically did just better than breakeven on an earnings basis in FY2013. However, Calumet is tracking towards ~$1.50 a share in profits in FY2014. The current consensus is for that to increase to $2.30 a share in FY2015 and that estimate is starting to move up on the back of its recent earnings results. ACCUMULATE

Disclosure: I am long CLMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Calumet: High-Yielding Refiner Continues To Deliver