In an Aug. 13 research note, analyst Pavel Molchanov reported that Raymond James boosted its rating on Chart Industries Inc. (GTLS:NASDAQ) to Outperform from Market Perform, "taking a positive stance for the first time since December 2016."
The stock, currently trading near a 52-week low, "is no longer in priced-for-perfection territory," Molchanov indicated. The stock was trading at $58.67 when the report was released and is currently at $59.36; Raymond James' target price is $72 per share; when.
Molchanov highlighted that Chart management's anticipated 2020 upside, equivalent to an earnings per share of about $8.00–8.75, is not only uncertain but also likely unattainable. The upside is based on the company landing large liquefied natural gas (LNG) contracts, thereby generating revenue of $300–370 million.
Yes, Chart will most probably land at least one of the expected contracts, acknowledged Molchanov. Yet the "U.S.-China trade war (and resulting tariff on U.S. LNG) is a headwind that will likely delay certain final investment decisions, above and beyond the macro LNG market uncertainty."
However, Chart no longer needs to attain that upside "for the stock to work," Molchanov pointed out. This is due to its revenue mix and expected future oil prices. About 60% of the company's revenue is linked to the energy sector and the remaining roughly 40% to non-energy industrials. Oil prices forecasted for 2020 by Raymond James at $92.50 West Texas Intermediate and $100 Brent translate to "positive readthrough for Chart's base energy revenue, (i.e.) everything other than large LNG projects."
Also, because the market's previous excitement around large LNG projects is no longer attached to Chart's stock, the LNG "opportunity is an essentially free option at the current entry point," added Molchanov.
He concluded, "Chart is a one-of-a-kind company with no direct public comps." What differentiates it from specialty industrials is its high sensitivity to commodities. Thus, "the higher the commodity, the more room for upside surprises."
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Disclosures from Raymond James, Chart Industries Inc., August 13, 2019
ANALYST INFORMATION
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst Pavel Molchanov, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Raymond James & Associates, Inc. makes a market in the shares of Chart Industries, Inc.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available here.
