Shares of Chart Industries (GTLS -1.39%) rose 22.4% in the month of February, according to data from S&P Global Market Intelligence.
The manufacturer of industrial gas and liquid tanks, heat exchangers, and rotating fans held its fourth-quarter earnings report on Feb. 28. While headline results were somewhat mixed relative to analyst expectations, the stock had already been punished heading into the month in the wake of an announcement from the Biden administration on future LNG terminal buildouts.
But the company's record results and strong guidance seemed to allay these fears, sending this cheap value stock higher.
Chart scores record orders and backlog
During the quarter, Chart recorded its first $1 billion quarter ever, with $1.02 billion in revenue and $2.25 in adjusted (non-GAAP) earnings per share (EPS). While those profit figures beat expectations, revenue actually came in a little bit lighter than analysts' forecasts.
But Chart's headline revenue can be affected by the timing of revenue recognition. Because the company participates in supplying such large projects, revenue recognition can sometimes be delayed due to a project or supplier delay, which often happens in large-scale industrial projects.
Investors should probably pay more attention to orders, which came in at $1.21 billion, or 20% higher than headline revenue, and up 7% sequentially and 28% year over year. In addition, the company guided for between $12 and $14 in adjusted EPS for 2024, which would be more than 100% higher than the $6.09 recorded in 2023.
On a $140 stock, that's a very cheap valuation, especially for a company growing as Chart appears to be. Management reconfirmed its previous targets for mid-teens annualized revenue growth and a mid-40% EPS growth over the next three years.
That annual guidance is actually slightly lower than the $14-plus given at the company's November 2023 investor day, but investors were likely breathing a sigh of relief anyway. Shares had declined toward the end of January after the Biden administration said it would pause approvals for new U.S. LNG terminals to do further assessments on their economic and environmental impacts.
But Chart actually forecast little impact from the new measure, as existing projects under construction are still being built, and Chart's revenue is highly diversified across global LNG companies, not just the U.S. And if the expected demand for LNG worldwide develops as forecast, those international customers would likely fill the void.
In addition, Chart cited only "customer timing & supply chain" factors in the slightly lowered guidance. Given that Chart has seen some project delays in the last couple of quarters, that's likely conservative and doesn't really mean any lost revenue but mere delays in revenue recognition and the associated profits.
Image source: Getty Images.
Chart is a compelling energy transition and de-leveraging story
Chart's stock plummeted after it announced the debt-fueled acquisition of Howden in November 2022, which closed in March 2023. But from the looks of it, the integration is going smoothly, with Chart exceeding its one-year cost and revenue-synergy targets by a good margin.
The integrated company, which can now offer more full solutions across Chart's tanks and heat exchangers and Howden's industrial fans, seems truly like it's better than the sum of its previous two parts.
Chart is also in many other industries besides LNG, including hydrogen, water purification, helium, carbon capture, clean mining, and other energy-transition markets besides oil and gas. Still 40% below its 2022 highs, Chart looks like one of the cheaper ways to play the clean energy transition even after February's surge.
