Chart Industries Riding A Recovery But Also Shifting The Business In Meaningful Ways

Chart Industries (GTLS) shares were hammered during the downturn in energy and process industries but are already up about 4x from the early 2016 bottom as the company has benefited from recovering demand in natural gas processing and recovering demand for industrial gasses. Better still, not only has management expanded and diversified its business with the Hudson deal, management seems more interested in backfilling the service and aftermarket opportunities.

With the shares up so strongly (up 80% in the last 12 months), I'm not too surprised that I don't see a lot of low-hanging value here. There are still meaningful opportunities in LNG and I believe the market often underrates the company's core industrial gas business, but today's valuation looks pretty reasonable for a company that should generate mid-single-digit revenue growth and double-digit FCF growth over the next decade.

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Chart Industries Riding A Recovery But Also Shifting The Business In Meaningful Ways

Seeking Alpha: Chart Industries No Longer Left For Dead

Back in January, I thought investors had the sort of opportunity I love to find in the market - the chance to buy a stock that had been pounded because a major growth driver seemed to be evaporating, and pounded to a point where the less exciting, but still profitable, base business more than justified the share price. Such was the case with Chart Industries (NASDAQ:GTLS) back in January, and the shares have come back nicely since then, even though the LNG growth story is still in trouble.

I continue to believe that Chart Industries is a good company in the industrial gas/energy space. With the rebound in the shares, though, I think the dramatic undervaluation has been mopped up and investors now have to have more conviction and optimism about the future of the LNG business to drive a substantially higher fair value. I do believe that the company stands to generate hundreds of millions of dollars from LNG export/import facilities in the coming years, but the move toward a more significant LNG-based transportation chain in the U.S. is farther off and less certain in my view. Chart still looks like an okay stock in my view, but there will be a lot of bumps in the road over the next couple of years, and I think investors should typically shoot for better than "okay".

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Chart Industries No Longer Left For Dead

Seeking Alpha: After Flaring Off The Excess Enthusiasm, Chart Industries Looks More Interesting

Around nine months ago investors still had to go to pretty great lengths to come up with a growth scenario that made Chart Industries' (NASDAQ:GTLS) valuation look reasonable. With Chart Industries and other "natural gas economy" stocks like Westport Innovations (NASDAQ:WPRT) and Quantum Fuel Systems (NASDAQ:QTWW) having gotten hammered down in the ensuing months, though, it's worth taking another look at some of the better names leveraged to growth in LNG.

To be sure, I don't think my model for Chart Industries is exactly conservative, as I'm still looking for annualized revenue growth of nearly 7% and margin leverage based on a North American LNG build-out that may never materialize. That said, those numbers support a fair value above $45 and an EV/EBITDA multiple of less than 7x for a company that could grow at a 10% clip for the next decade seems like an interesting valuation for an admittedly speculative opportunity.

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After Flaring Off The Excess Enthusiasm, Chart Industries Looks More Interesting

Seeking Alpha: Lincoln Electric Is Mortal After All

Lincoln Electric (LECO) has been an exceptionally well-run industrial company for decades, building itself into one of the world's largest suppliers of welding equipment and consumables. But no company is perfect, and Lincoln Electric posted a surprisingly large miss at a time when rival Illinois Tool Works (ITW) doesn't seem to be sharing in the weakness.

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Lincoln Electric Is Mortal After All

Investopedia: Lincare Shows That You Can Go Home Again

If I had to guess the sort of healthcare company that would get a premium acquisition offer, Lincare (Nasdaq:LNCR) would be low on my list, as relatively few buyers would want to pay a premium to get into a business that is beset by constant reimbursement pressures. But, as the old saying goes, you only need one buyer to make a deal and Lincare found that one.

In a deal that reverses a spin-out from nearly 25 years ago, German industrial gases company Linde will be acquiring Lincare for $4.6 billion in total considerations. That works out to $41.50 per share for Lincare's shareholders; a 22% premium to Friday's closing price (which had been moving up on takeover rumors) and a whopping 67% premium to the stock's three-month average price.

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Seeking Alpha: Chart Industries Running Hot And Cold

It takes time to reorganize a country's energy infrastructure, let alone the world's, but there are nevertheless real signs of progress when it comes to natural gas. While the LNG story is still dominated by large energy companies looking to monetize huge natural gas fields in remote corners of the world, there has been progress towards the use of LNG in place of gasoline or oil in many applications around the world.

As that process continues, the potential for Chart Industries (GTLS) should only improve. That said, while there is a pretty hot future in keeping gas very cold, the company's current financial performance and valuation leave something to be desired.

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Chart Industries Running Hot And Cold

Investopedia: Industry At A Glance - Specialty Chemicals

The chemicals industry is one of the most economically-sensitive industries around, and many of the major chemical companies are very nearly proxies for global GDP growth. Specialty chemicals, though, is a subsector with some notable differences. It is certainly not fair to say that these companies are neither cyclical nor invulnerable to global growth trends, but many of these companies offer products or serve niches that tend to be a little more stable.


There are ample worries about growth in the market today. If the economy is truly headed into a double-dip recession, these companies are not going to be notable outperformers. On the other hand, many of these stocks have been hit on growth worries and investors may find that these companies have either been sold too far, or at least merit spots on watchlists for the recovery in growth expectations.

Air Products (NYSE:APD)
If you want hydrogen or helium, there's a good chance you'll do business with Air Products. APD is a global leader in atmospheric and process gasses. These are critical inputs in many industrial and manufacturing processes and there are substantial advantages to scale and scope. That said, APD has about 20% exposure to the electronics industry (good in most periods, but arguably a negative today) and the company's profitability goals for 2015 are starting to look a little too ambitious. That said, the stock looks undervalued today and a 3% dividend yield is not a bad sweetener.




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Praxair's Success Not Just Hot Air

I have been somewhat obsessed with trying to figure out the real tenor of the economy during this earnings season. Specialty chemical companies like Albemarle (NYSE:ALB) have been strong, coal companies like Peabody (NYSE:BTU) have been reasonably positive and industrials like Dover (NYSE:DOV) have had pretty solid guidance. In fact, the only major notes of caution have been from steel companies like Nucor (NYSE:NUE). 

Industrial gas provider Praxair (NYSE:PX) goes solidly in the camp of "good news for the economic recovery". Although industrial gas companies sign customers to long-term contracts and do not tend to be quite as cyclical as you might immediately think, the volume growth that this company is seeing is nevertheless a pretty strong testament to growing economic activity around the world. 


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