Bear of the Day: Chart Industries (GTLS) - Bear of the Day
March 05 2014 - 4:53AM
Zacks
Chart Industries (GTLS) is a $2.5 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.
After the company's 3rd-quarter earnings report on
October 31, I first wrote about it for the Bear of the Day. That
report included a miss and guide lower, leaving investors and the
stock completely out of fuel as shares dropped over 27% in the last
three weeks.
As the stock slipped back to a Zacks #5 Rank last
week, I thought it would be good to revisit the story and see where
things might be headed. The news is not getting any better since
their most recent report and analyst earnings estimates have taken
another nose dive.
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.
The Chart for Chart
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/1393980245_scaled_425.jpg)
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 fallen to 3-year 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 time of it, with the stock dropping out of
a long $12-14 range to levels not seen since July of 2009. They
remain unprofitable with EPS estimates still trending downward.
Cheniere Energy (LNG) is the other nat gas
stock I traded last 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% in the past year.
The Future for Chart
Given this mixed landscape for LNG-centered
businesses, it is no surprise what Global Hunter Securities had to
say about Chart Industries last fall..
"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. On February
26, the firm lowered earning estimates again and their price target
to $80.
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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