Renewable Trends And Specialties Will Shape Future Markets

Key Takeaways

• Expansion into sustainable aviation fuel and regulatory tailwinds position Calumet for significant revenue and margin growth in renewable fuels.
  
• Strategic shift to high-margin specialty products and efficiency initiatives enhance earnings quality and provide resilience against commodity market volatility.
  
• Heavy dependence on regulatory support, commodity exposure, and high leverage exposes Calumet to volatile margins, cash flow unpredictability, and constrained growth flexibility.

Catalysts

Manufactures, formulates, and markets a diversified slate of specialty branded products and renewable fuels to various consumer-facing and industrial markets in North America and internationally.

• The MaxSAF 150 project is on track to start up in the first half of 2026, enabling Calumet to produce 120-150 million annual gallons of sustainable aviation fuel (SAF) at relatively low capital costs, capturing premiums of $1-$2/gallon over renewable diesel and tapping into surging mandated and voluntary SAF demand globally; this is likely to drive material step-up in revenues and EBITDA margin expansion once operational.
  
• Recent and anticipated regulatory changes-including extension and transferability of the 45Z production tax credit through 2029, higher proposed renewable volume obligations (RVO), and policies excluding imports from key credits-are strengthening domestic renewable fuels economics and creating visibility to more robust and resilient cash flows for Calumet's Montana Renewables operations, supporting both current profitability and long-term earnings growth.
  
• Specialty products and solutions segment continues to deliver resilient sales volumes and margin outperformance versus industry averages, supported by diversification in end-markets (e.g., lubricants, pharmaceuticals, food-grade products) and ongoing urbanization and infrastructure demand, providing stability to company-wide revenue and supporting stronger overall net margins even during commodity price downturns.
  
• Ongoing cost-reduction and operational reliability initiatives have decreased company-wide operating expenses and increased throughput, yielding higher production efficiency and freeing up cash which, together with monetization plans for tax attributes, provides capacity for further debt reduction and improved net income; these efficiencies are likely to structurally boost future operating margins.
  
• Repositioning away from commoditized products toward high-margin specialties, together with scale advantages and sustained regulatory tailwinds for renewable fuels, strategically positions Calumet to benefit from the multi-decade shift to sustainable infrastructure, transportation, and alternative energy markets-trends expected to underpin top-line growth and enhance earnings quality in coming years.

Calumet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Calumet's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -11.1% today to 0.8% in 3 years time.
• Analysts expect earnings to reach $40.3 million (and earnings per share of $0.47) by about August 2028, up from $-452.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 56.1x on those 2028 earnings, up from -2.6x today. This future PE is greater than the current PE for the US Oil and Gas industry at 13.2x.
• Analysts expect the number of shares outstanding to grow by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.11%, as per the Simply Wall St company report.

Calumet Future Earnings Per Share Growth

Risks

• The company's heavy reliance on the regulatory environment to support margins-especially for renewable diesel and SAF-is a long-term risk; if regulatory support such as tax credits or favorable RVOs is reduced or fails to materialize, it could lead to significant margin compression, directly impacting long-term earnings and revenue growth.
  
• Persistent overhang of excess RINs, slow regulatory finalization (such as RVO and SRE uncertainty), and market volatility have led to industry-wide margin weakness, revealing Calumet's vulnerability to low mid-cycle earnings periods and unpredictable cash flows.
  
• The transition to more commodity-exposed segments (such as increased focus on asphalt or reliance on specialty chemical resilience) leaves Calumet exposed to cyclical downturns or industry commoditization, which may erode pricing power and compress operating margins over time.
  
• Although there has been progress in deleveraging, Calumet continues to carry substantial debt and remains reliant on successful asset monetizations and strategic sales; execution risk tied to this high leverage presents ongoing constraints on net margins and limits flexibility for growth investments or downturn mitigation.
  
• The ongoing shift toward decarbonization and potential for stricter ESG or emissions-related regulations could raise compliance costs or impose capital access challenges, particularly as Calumet's traditional hydrocarbon business segments and even renewables remain exposed to evolving policy landscapes that may negatively affect long-term revenue and profitability.

Valuation

• The analysts have a consensus price target of $19.05 for Calumet based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $33.0, and the most bearish reporting a price target of just $13.25.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $40.3 million, and it would be trading on a PE ratio of 56.1x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of $13.75, the analyst price target of $19.05 is 27.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.