Moving Chart Industries (GTLS) to Sell with a 64% profit since July 2020 recommendation
Chart Industries’ (GTLS) shares surged 11% yesterday to 83.67, about 6% above our 79 price target. While we appreciate the company’s strengths in the cryogenic equipment industry, and recognize that the shares could continue to surge on enthusiasm about Chart’s incremental emphasis on hydrogen technologies, we are staying with our price target. With the stock now above that target, we are moving the shares to Sell.
We initiated GTLS as a Buy in the July 15, 2020 letter. Based on the prior day’s (July 14) closing price of 51.12, the shares have subsequently produced a 64% profit.
While some of yesterday’s share price surge might have been related to modestly supportive news on LNG demand (implying more demand for Chart’s core LNG-related products), most was likely driven by news of Chart’s recent investment in hydrogen-tech McPhy and its acquisition of Worthington Industries’ cryogenic and hydrogen trailer operations.
The stock market is growing more bullish on hydrogen technologies as a possible alternative fuel for trucks and cars. We agree – the market for hydrogen fuels has considerable potential – but this is (literally) a long way down the road. GTLS is becoming a trendy and higher-risk “hydrogen” stock.
The recently announced deals are too small to meaningfully impact Chart’s earnings for years. And, they don’t come for free: the company had to pay for those earnings. Worthington Industries is a savvy metal services company that wouldn’t part with assets on the cheap. While the deal terms were not disclosed, Chart said that the Worthington assets would add an estimated $15 million to $20 million in revenue next year. We would estimate that their earnings could be as little as $1-$2 million.
And, McPhy is an early-stage company (2019 revenues of about $14 million) with interesting potential but may not produce meaningful profits for a decade or more. Chart’s €30 million (about $35 million) provides them with a 5% stake in the company.
Yesterday’s news follows other Chart hydrogen deals, and there will likely be more in the months and years ahead. Some of the rationale behind Chart’s recent (and underpriced) exit of its $320 million Cryobiological Products unit was to provide cash for future deals.
Chart is an interesting company, for sure, and we would be happy to buy again at much lower prices.