On Thursday, TD Cowen adjusted its price target on shares of Calumet Specialty Products Partners (NASDAQ:CLMT), increasing it to $27.00 from the previous $22.00. The firm maintained its Buy rating on the stock.
The revision came after Calumet secured a Department of Energy (DoE) loan that is set to fund the expansion of its Sustainable Aviation Fuel (SAF) production. The loan amount, larger than initially expected, is anticipated to lower the company's interest expenses.
The analyst at TD Cowen highlighted that the acceleration of SAF production is expected to enhance the company's EBITDA outlook, justifying the higher price target. The new loan is likely to provide the financial support necessary for Calumet to scale up its SAF operations.
Despite the positive outlook, the analyst noted a risk that Calumet could be valued based on near-term dynamics similar to other renewable diesel (RD) companies. However, the significance of the SAF project is expected to encourage investors to consider the company's longer-term potential.
Calumet's focus on increasing its SAF production comes amid growing demand for sustainable and alternative energy sources. The DoE loan represents a crucial step in the company's plans to expand its presence in this emerging sector.
In other recent news, Calumet, Inc. and its subsidiary Montana Renewables have received conditional loan guarantee commitments from the U.S. Department of Energy totaling nearly $3 billion. This funding will support the expansion of their Montana-based facility, increasing its production capacity to approximately 315 million gallons of biofuels annually. The majority of this production will be Sustainable Aviation Fuel (SAF), contributing to the broader goal of supplying all U.S. aviation fuel needs with SAF by 2050.
Furthermore, Calumet has entered into a $150 million sale and leaseback transaction with Stonebriar Commercial Finance for its subsidiary, Calumet Montana Refining. This move is part of Calumet's ongoing efforts to reduce its debt, as demonstrated by the repayment of $50 million of its 2025 notes.
Analysts from TD Cowen and H.C. Wainwright have maintained a Buy rating on Calumet's shares, despite TD Cowen lowering the price target. These actions follow Calumet's strong Q1 EBITDA of $21.6 million and the recent conversion to a corporation.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Calumet Specialty Products Partners' financial position and market performance. The company's market capitalization stands at $1.88 billion, reflecting investor interest in its growth potential, particularly in the Sustainable Aviation Fuel sector.
Calumet's stock has shown strong momentum, with a 19.9% return over the past month and an impressive 40.22% return over the last three months. This aligns with the positive sentiment following the Department of Energy loan announcement and TD Cowen's upgraded price target.
However, InvestingPro Tips caution that Calumet operates with a significant debt burden, which could impact its financial flexibility. Additionally, the company's gross profit margin is weak, standing at 12.81% for the last twelve months as of Q2 2024. These factors may present challenges as Calumet seeks to expand its SAF production.
Investors should note that InvestingPro offers 15 additional tips for Calumet Specialty Products Partners, providing a more comprehensive analysis of the company's financial health and market position.
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