Government lent it $1.44 billion. The loss-making firm with negative equity is turning into the king of sustainable aviation fuel

Few stocks have turned investors’ heads in the past year quite like this one. At first glance it looks like a loss-making, heavily indebted company on the brink: accounting losses, negative shareholders’ equity and a last quarter awash in red ink to the tune of hundreds of millions. But anyone who looks beneath the surface will find a company that is finishing one of the most interesting transformations in the entire industry, turning from a traditional petroleum products processor into a major player in renewable fuels, with its operating performance improving by leaps and bounds.

That apparent loss is, for the most part, just an accounting illusion. It consists mainly of items that aren’t real cash outflows, but simply the revaluation of various positions over time, thus masking the real improvement that is taking place inside the company. The real engine of the story is the facility in Montana, which has become one of the continent’s largest producers of sustainable aviation fuel and which has just undergone a crucial expansion funded by a giant government loan. For a company of this size, it’s a step that could change everything.

But this is precisely where the most interesting question begins. Because the market has largely already grasped all of this. The stock has surged in just half a year to a one-year high, meaning that an investor considering a purchase today is buying a completely different company at a completely different price than someone who bought a year ago. The business is unquestionably better than ever before. The question is whether, at today’s price, it’s also a better buy.

And the answer isn’t simple, because it lies in the tension between two forces: the extraordinary growth potential of renewable fuels on one side, and high debt, volatile earnings and dependence on government subsidies on the other.

Company profile

We’re talking about Calumet, Inc. $CLMT, a US company that manufactures and sells specialty chemical products, traditional refining products and, more recently and notably, renewable fuels. The company is headquartered in Indianapolis, Indiana, employs around 1,500 people and is led by Todd Borgmann. It operates in three main segments, which we’ll examine in detail, but in simple terms it’s a company with two very different faces: a stable, profitable specialty chemicals business on one side, and a fast-growing but capital-intensive renewable fuels business on the other.

The model is best described like this. Imagine a company that, for decades, has reliably produced and sold specialty oils, waxes, solvents and lubricants – a boring but profitable business with loyal customers. And this company decided to bet a large part of its future on a completely new field: converting vegetable oils, used cooking oil and animal fats into renewable diesel and, most importantly, sustainable aviation fuel (SAF), i.e. jet fuel made from waste feedstocks instead of petroleum. This transition is the very core of the investment story and, at the same time, the source of its greatest uncertainty.