Far-Sighted Investors Could See This Key LNG Player Surge 40%

All across the globe, plans are under way to increase reliance on natural gas. It burns cleaner than coal and is less expensive than crude oil on an energy-equivalent basis. In response, many countries in Asia and Europe are preparing to boost their imports of liquefied natural gas (LNG) from Russia, the Middle East and the U.S. For that to happen, a major amount of infrastructure needs to be put in place.

Many firms stand to prosper from the trend, but perhaps none as greatly as Chart Industries (NASDAQ: GTLS), which makes a wide range of LNG products such as cold boxes, heat exchangers, storage systems and vacuum-insulated pipe, all of which are used in the storage and transport of LNG.

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Demand has been solid with Chart Industries’ sales growing from $555 million in 2010 to around $1.18 billion in 2013. Yet the company’s impressive growth spurt appears to have cooled. 

On an April 29 call with analysts, CEO Samuel Thomas noted that 2014 got off to a slow start: “Weather had a significant impact on our U.S. business during the quarter.” He added that demand “turned a corner in March, when order intake in our packaged gas business was better than anticipated. That increased activity has continued in April.”

Still, the slow start to the year means that the company’s annual revenue growth will dip below 10% this year to an estimated $1.27 billion, and many growth-oriented investors have fled the stock. 

The good news is that China appears committed to rapidly developing its LNG infrastructure, which is a wise move now that it has agreed to buy massive volumes of natural gas from Russia over the next few decades. 

Thomas notes that recent Chinese regulatory changes are expected to spur greater adoption of natural gas-powered trucks, while the government also recently implemented subsidies for the construction of LNG powered ships. “These two recent moves are real drivers for continued LNG growth in China,” he said.

A recent acquisition of a manufacturing plant in Wuxi, China should help Chart Industries to garner more business in that country as a domestic supplier. 

According to analysts at Clarkson Capital Markets, “The adoption of natural gas as a transportation fuel across the road, rail and marine segments in both China and the U.S. is in its relative infancy.” With respect to Chart Industries, they say, “Part of what makes the GTLS value proposition unique is that the company now participates in each phase of the LNG supply chain from the wellhead to the end user.”

As an example of the company’s broad exposure to the Chinese market, it recently announced an agreement to help build 50 LNG filling stations for China’s Shandong Hanas New Energy Co. 

Six months ago, GTLS was trading in the triple digits. But a few bumpy quarters pushed shares down into the $70s, which is a great opening for far-sighted investors.

GTLS Stock Chart

In late April, the company reported Q1 results that fell well short of analysts’ estimates and delivered an unpleasant jolt to the stock. But the road ahead appears brighter. Sales are expected to start rising at a mid-teens clip in 2015. And though EPS growth is likely to be constrained this year as the company spends heavily to complete several new manufacturing facilities, it is expected to rise around 30% year over year to $4 a share in 2015. 

Investors have developed a greater awareness that LNG is likely to be shipped and stored around the world in ever larger volumes, and Chart Industries is poised to be a long-term beneficiary of this trend. Shares could easily extend back into the $130s, as was the case in 2013, when quarterly results were consistently good. 

Analysts at Lake Street Capital “see a long duration of growth as new markets develop and the company executes on its growth plans.” Their target is $103, while Clarkson carries a similar $106 price target.

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