Bear of the Day: Chart Industries (GTLS) - Bear of the Day
November 25 2013 - 4:14AM
Zacks
Chart Industries (GTLS) is a $2.7 billion global engineering
company that specializes in equipment primarily used in energy
processing applications such as liquefied natural gas (LNG) and in
the purification and storage of industrial gases for medical
fields.
But its 3rd-quarter earnings report on October 31,
which included a miss and guide lower, left investors and the stock
completely out of fuel as shares dropped over 27% in the last three
weeks.
Chart Industries, which was seen on the forefront
of systems required to support trucks that run on LNG, operates in
three segments: Energy and Chemicals, Distribution and Storage, and
Biomedical. The latter segment wasn't the problem area last
quarter.
According to analysts at Global Hunter Securities,
"GTLS printed a disappointing quarter in issues in its two banner
segments. The D&S segment missed on the top line due to
projects moving out the door slower than anticipated and E&C
missed as margins came in lower due to pricing issues."
The Chart for Chart
After the disappointing report, the stock and its
Zacks Rank tell a story that any investor caught with a "miss and
lower" quarter -- as opposed to "beat and raise" -- can relate
to.
![](http://static.zacks.com/images/zacks/blogs/1385157449_scaled_425.jpg)
GTLS shares fell to a Zacks #5 Rank on November 5
after several analysts revised their estimates lower. At the time,
the stock was still trading $102 and gave investors plenty of heads
up to plan their exit before dropping below $87 last week.
And GTLS actually went to Zacks #4 Rank on October
19 as some astute analysts began lowering their numbers ahead of
the company's quarterly report. It seems the love for this company
among many investors made them reluctant to let go of their shares
despite the warnings in the revision data.
The LNG Frontier
In the past two years, I have invested in two other
companies involved in using LNG for truck fuel. Westport
Innovations (WPRT) caught my eye in 2012 as a maker of engine
conversion kits, and not least because their "big brother" in the
business was Cummins (CMI).
While some companies like UPS and FedEx already run
expanding portions of their fleets with natural gas engines, the
idea for all of America's trucks to run on nat gas was popularized
by infamous energy tycoon T. Boone Pickens.
The billionaire oil man has spent several years
lobbying Congress to pass what is commonly known as the Natural Gas
Act. His plan for American energy independence and
economic/environmental stability was to have the government
subsidize the conversion of 18-wheelers from diesel to nat gas.
WPRT fortunes may have been tied to much to these
big expectations about government subsidies for truck engine
conversions and the stock has recently fallen to 18-month lows as
those "nat gas dreams" have not materialized.
Clean Energy Fuels (CLNE), one of the
leading LNG gas station operators (in part financed by Pickens)
hasn't had a much better year, with the stock basically stuck
between $12 and $14 for over 18 months since a peak above $24 in
early 2012. They remain unprofitable with EPS estimates still
trending downward.
Cheniere Energy (LNG) is the other nat gas
stock I've traded this year. They are the only company approved by
the Department of Energy to export LNG and CNG (compressed natural
gas) products. They are building the export facilities in Louisiana
and shares are up over 100% this year.
The Future for Chart
Given this mixed landscape for LNG-centered
businesses, it is no surprise what Global Hunter had to say about
Chart Industries recently...
"The market realized the issues that led to our
downgrade several months ago: that the LNG space is highly
competitive, large projects have a tendency to slip and costs are
often underestimated. We continue to believe that the macro story
is very strong and that GTLS will participate, but we feel that is
currently priced into the stock, thus we are not moving off of our
Neutral rating."
That was their view on November 4 when they lowered
EPS estimates for Q4 and the full year 2014. They also lowered
their price target on shares then to $107 from $115.
They were joined by 9 of 12 other analysts in
similar moves and this brought down the 2013 EPS consensus to $2.95
from $3.22. The full year 2014 consensus slipped to $4.03 from
$4.39. William Blair analysts lowered their EPS estimates but
maintained their $104 price target.
While GTLS may have superior technology that will
be in high demand when the trend of nat gas trucks accelerates,
right now the earnings revisions trends are saying to find another
ride.
Kevin Cook is a Senior Stock Strategist for
Zacks where he runs the Follow The Money portfolio.
CLEAN EGY FUELS (CLNE): Free Stock Analysis Report
CUMMINS INC (CMI): Free Stock Analysis Report
CHART INDUSTRIE (GTLS): Free Stock Analysis Report
CHENIERE ENERGY (LNG): Free Stock Analysis Report
WESTPORT INNOV (WPRT): Free Stock Analysis Report
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