Why Calumet Stock Was a Major Winner on Wednesday

In providing what has to be considered one of the better examples on Wednesday of a "make hay while the sun shines" strategy, Calumet (CLMT +4.36%) stock enjoyed an impressive rally. The oil products company's shares leaped more than 4% that day, on its announcement that it was reducing its debt load.

An important note about notes

Before market open, Calumet announced that two of its wholly owned subsidiaries are redeeming all of the senior notes from an early 2025 issue. They will redeem all notes in the $100 million, 9.75% issue that matures in 2028. They're paying a not-very-burdensome premium for this, as they're redeeming at a price of slightly over 102.4% of the notes' par value.

Image source: Getty Images.

This is part of a broader strategy to trim Calumet's indebtedness; the company didn't hesitate to point out that in the second quarter, it also reduced borrowings under its revolving credit facility.

This program of balance sheet improvement should continue, since the company quoted CFO David Lunin as saying that "with operating momentum and a favorable outlook, we are well positioned to continue accelerating deleveraging while investing in the growth opportunities that create long-term shareholder value."

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NASDAQ: CLMT

Calumet

Today's Change

(4.36%) $1.62

Current Price

$38.79

Key Data Points

Market Cap

$3.2BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.Market cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day's Range

$37.69 - $39.50

52wk Range

$12.94 - $39.50

Volume

1.1M

Avg Vol

932K

Gross Margin

5.74%

Still a big number

While this is almost indisputably a positive development for Calumet, I'd caution that the company remains quite highly levered -- at the end of its most recently reported quarter, its long-term debt stood at just under $2.3 billion, against nearly $2.8 billion in assets.

Personally, I'd like to see this reduction strategy run for a quarter or two more to be convinced it's more than a short-term commitment. I also feel Calumet's headline results would substantially improve if it sticks to this goal.