By Kevin Cook
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.
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.