Summary
- In August, I wrote a bearish article on Chart Industries pointing out the company's then-lofty valuation and earnings disappointments.
- Since then, the company announced better-than-expected Q4 earnings, breaking a long trend of consecutive misses.
- At its current valuation, Chart offers significant upside to investors seeking to gain exposure to an energy infrastructure play.
Back in August I wrote a bearish article about Chart Industries Inc. (NASDAQ:GTLS) suggesting that investors hold off until the company could prove itself to the Street. Since that article was published, the stock has tumbled ~50%. I'm still not entirely confident in the company's ability to meet earnings expectations, but taking into consideration the dramatic price correction that has ensued, I think the game has completely changed. Below I'll discuss the company's current circumstances and dissect the investment opportunity that the stock offers investors.The Long Way Down
Because Chart Industries relies heavily on capital expenditures from the energy sector, the stock price is sensitive to changes in commodity prices. Over the past year, Chart has closely tracked the decline in natural gas prices. This is shown below in the performance comparison between Chart Industries stock and the United States Natural Gas ETF (NYSEARCA:UNG).
Additionally, Chart has tracked the price of crude oil closely. Below is a comparison between Chart and the United States Oil ETF (NYSEARCA:USO).
GTLS data by YCharts
While the market has mercilessly punished Chart (along with countless other energy products and services companies), Chart has still remained quite profitable. Personally, I believe that the market has completely overreacted to the slide in commodity prices and has punished Chart to somewhat of a comical point. Chart has put up solid operating results relative to the current stock price, yet the market has still traded Chart as if it were on its way to filing for bankruptcy. When looking at operating results, you get to see how this market overreaction has created a solid buying opportunity.
Operating Results
Chart reported Q4 and FY2014 results on February 24, significantly beating consensus estimates. For the fourth quarter, Chart beat EPS estimates by $0.29 and revenue estimates by $33.4 million. For the year, net income and net sales essentially remained flat.
Results for each segment are broken down as follows:
| Business Segment | Rev. | Rev. Growth (yoy) | % of Total Rev. | |
| Energy & Chemicals | $110.2M | 40% | 33.8% | |
| Distribution & Storage | $160M | (2%) | 49.1% | |
| BioMedical | $55.9M | (8%) | 17.1% |
In regard to EPS (as I discussed in my bearish article), Chart had made a habit of missing earnings estimates. The company had missed on earnings for 7 consecutive quarters going into the fourth quarter. The recent beat is a positive signal for a couple reasons: 1) It breaks the trend of seemingly nonstop earnings misses, and 2) The magnitude of the beat (49% higher than consensus) signals the extremely low bar that analysts have set for the company. Despite the dramatic selloff, Chart has still put up solid earnings over the past 5 years, as shown below.
GTLS EPS Diluted (Quarterly) data by YCharts
Below you'll see that over the past 5 years, Chart stock has tracked the company's quarterly net income pretty closely. This trend was broken during the latter half of 2014, where there is a noticeable dispersion that began to form in the middle of the year. This breakdown demonstrates the market's extreme overreaction to the company's lackluster performance and the slide in oil and natural gas prices.
GTLS data by YCharts
There's no question that the company is quite profitable. However, the only variable remaining is valuation.
Valuation
In the below table, I compare valuation metrics of Chart Industries stock on August 1, 2014 and March 20, 2015.
| 8/1/2014 | 3/20/2015 | |
| Market Cap | $2.15B | $1.05B |
| P/E (TTM) | 28.6 | 12.86 |
| Forward P/E | 17.95 | 15.12 |
| PEG | 1.24 | 0.85 |
| P/S | 1.98 | 0.87 |
| P/B | 2.81 | 1.17 |
| Enterprise Multiple | 13.82 | 6.36 |
Compared to its valuation in August, Chart stock is trading at a significantdiscount based on every single one of the above measures. While I was concerned about valuation in my original article, now it seems as though the tables have turned almost completely. The company is now trading at such a steep discount that I find it difficult to pass up. There doesn't seem to be much downside left, and so now seems to be a great time to get in at the basement.
Disclosure: The author is long GTLS.
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