(Idea) Calumet - It's Time To Trim
Please read previous CLMT write-up: (Idea) Calumet - Big Upside If The Market Prices The RIN Windfall
By: Jon Costello
I began buying Calumet (CLMT) in 2022 at approximately $14.21 and have held it as the largest position in the HFIR Energy Income Portfolio for most of the period since. In May, with the stock at $31.50, I estimated a probability-weighted value of approximately $50. The shares closed on July 28 at $41.48, up 32% since May and 144% over the past year, after running to a multi-decade high of $45.20 last week.
The appreciation alone does not make the shares overvalued, but it changes the position-sizing decision because the stock has risen much faster than the D4 RIN price, a principal driver of Montana Renewables’ earnings. The RIN peaked at $2.58 on July 7 and declined 11% over the next three weeks, while CLMT has gained 12% over the same period. The pricing divergence does not invalidate my thesis, but it indicates that the market is discounting continued strength in renewable-fuel economics. With the shares approaching my probability-weighted value and offering limited base scenario upside, the question is whether the expected return still justifies the position’s size.