Seeking Alpha: Chart Industries Has Deflated On A Slower LNG Buildout

It's been a rough year for companies tied to the LNG infrastructure market, as once-rich valuations continue to smack into the reality that development of the U.S. market remains frustratingly slow and China continues to be consistently inconsistent. Chart Industries (NASDAQ:GTLS) is down another 15% or so from when I last wrote about the company but still sports a double-digit trailing EBITDA, while Westport (NASDAQ:WPRT), Clean Energy (NASDAQ:CLNE), Linde (OTCPK:LNEGY), and CBI (NYSE:CBI) are likewise all down on a year-to-date basis.

The arguments for an LNG capacity build out still make sense - the U.S. has extensive natural gas reserves and LNG offers not only an alternative to oil-based fuels but also a way for countries like China to address air quality issues. Chart Industries addresses those opportunities with leading technologies in heat exchangers, storage, and distribution, but even after a 40% pullback the expectations built into the valuation don't exactly seem undemanding.

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Chart Industries Has Deflated On A Slower LNG Buildout

Seeking Alpha: The Realities Of The LNG Market Weigh On Chart Industries

When I last wrote about Chart Industries (GTLS), one of concerns about the company's high-flying valuation was that there was a real risk of disappointment if the rollout of LNG vehicle fuel infrastructure hit any bumps in China or the U.S.. That is exactly what's happening, and the consequences for Chart's stock price have not been pretty.

Chart's ability to manage large-scale Energy and Chemical (E&C) projects need to improve, but a lot of what will drive this company/stock is outside of management control - truck builders, fueling station builders, and LNG liquefaction facility builders seem stuck in a cycle of "no, you first". I do believe that LNG as a vehicle fuel makes too much sense not to happen and that Chart Industries shares hold some appeal now for long-term investors, but the stock really needs better reported order growth to get moving upwards again.

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The Realities Of The LNG Market Weigh On Chart Industries

Seeking Alpha: LNG Continues To Fuel The Chart Industries Story

The picks-and-shovels approach to the LNG market that Chart Industries (GTLS) offers has already delivered great results for long-term shareholders. Up almost 70% in the past year and over 400% for the past five years, Chart Industries has shown itself to not only be the real deal in terms of offering leverage to LNG infrastructure growth, but smart about picking and choosing its market opportunities.

Chart is not cheap by any valuation approach I can come up with, but I don't think it will get all that cheap until the outlook for LNG infrastructure growth slows significantly… and I don't expect that to happen any time soon. I'm not going to push the "valuation doesn't matter" angle as I like to practice what I preach, but with the build out of LNG infrastructure in the U.S. and Europe still in early days, it won't surprise me at all if Chart continues to perform quite well.

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LNG Continues To Fuel The Chart Industries Story

Investopedia: Is Cummins Building For Bigger Things?

Modeling and assigning a fair value to Cummins (NYSE:CMI) is not a particularly easy task. It's hard to find a better company in the transportation components sector, not to mention the wider industrial sector as a whole. Through all of the cyclical ups and downs of the commercial vehicle market(s), Cummins almost always generates double-digit returns on invested capital and has managed to stay in the green with free cash flow.

So quality and ability to execute are not problems. What is the problem is estimating fair future growth rates. It seems hard to imagine that Cummins can match its trailing revenue growth rate of 12%, but countries like Brazil, China, and India are still seeing trucking operators building their fleets, while the move to natural gas could fuel demand not only for LNG/CNG engines, but also compression facilities and more equipment for the energy sector. Although I think the Street may be a little too optimistic on the free cash flow margin leverage Cummins can deliver, I'm increasingly thinking this is a good stock to own for the longer term.

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http://www.investopedia.com/stock-analysis/073113/cummins-building-bigger-things-cmi-nav-cat-wprt.aspx

Seeking Alpha: Is Student Transportation Steering Toward A Ditch?

There's a long custom of Canadian companies structuring themselves in such a way that they convey a large percentage of earnings and/or operating income to shareholders in the form of dividends. In days past, these distributions were screened from taxation by companies organizing themselves as royalty trusts (CanRoys), but the Canadian government largely shut that process down years ago.

In any case, Student Transportation (STB) is a Canadian company that provides school busing services in the U.S. and funnels a very large percentage of its cash flow to shareholders in the form of dividends. That has made the company a high-yield option for dividend investors, but I wonder if optimism about the company's yield and future growth prospects has run a little too hot relative to the company's underlying financial performance and valuation.

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Is Student Transportation Steering Toward A Ditch?

Investopedia: Westport Is Still All About Tomorrow

Whether it's truck and engine company executives like those at Navistar (NYSE:NAV) and Caterpillar (NYSE:CAT), environmentalists, or energy policy pundits, it seems like there's a broad agreement that the U.S. needs to do more to make use of natural gas as a vehicle fuel. With high-quality partners like Volvo (OTC:VOLVY) and Cummins (NYSE:CMI), Westport Innovations (Nasdaq:WPRT) continues to look like a promising play on that trend. That said, while these shares could indeed have substantial upside from here, the LNG/CNG engine market is still in its infancy and there are no guarantees that customers will go in the direction of Westport's technology.

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http://www.investopedia.com/stock-analysis/2012/Westport-Is-Still-All-About-Tomorrow-WPRT-CMI-NAV-CAT1109.aspx

Investopedia: Does The Stock Of Chart Industries Already Discount A Rosy Future?

Natural gas has a bright future, both here and abroad, as an energy source in a variety of applications. Not only do countries like the U.S. and China have substantial shale gas reserves, but a host of companies like Westport (Nasdaq:WPRT) and Clean Energy (Nasdaq:CLNE) are developing technologies to exploit them in applications like vehicle fuel.

For natural gas usage to meet its potential, though, the world needs a lot more infrastructure and that's where Chart Industries (Nasdaq:GTLS) comes into the picture. By offering good technology that addresses multiple points in the ecosystem (liquification, storage, distribution, etc.), this company should have many years of impressive revenue growth ahead. The question, though, is just how much of this the stock price already reflects.

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Investopedia: CB&I Harnessing Some Energy

These are bad days for large-scale construction, right? High debt and low tax revenue is hampering public works projects and manufacturing companies have little need to add capacity just yet. Likewise, construction activity in the leisure sector (hotels, casinos, and so on) has yet to pick up. On top of that, power generation is caught between those who hate the idea of more coal plants and those who really hate the idea of more nuclear plants. 

Well, yes and no. Construction activity in those segments is indeed weak, but there is a notable exception - the oil and gas sector. And that is where CB&I (NYSE:CBI) (formerly known as Chicago Bridge & Iron) makes its bread and butter; building a wide range of facilities like storage tanks, processing plants, liquefaction facilities and terminals.  
 


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