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Key Takeaways
- Chart Industries expects revenue growth from strong demand and commitments in hydrogen, LNG, and specialty segments, with a substantial commercial pipeline.
- Cost synergies, operational improvements, and digital service enhancements are poised to increase margins, optimize cash flow, and reduce debt.
- Slowing demand in China and project-based order dependency can impact revenue growth and financial stability, exacerbated by foreign exchange and geopolitical risks.
Catalysts
About Chart Industries- Engages in the designing, engineering, and manufacturing of process technologies and equipment for the gas and liquid molecules in the United States and internationally.
- Chart Industries anticipates significant revenue growth driven by an expanding order book in hydrogen, LNG, and other specialty segments. The company has a commercial pipeline of over $23 billion, with $1.95 billion in commitments not yet in backlog. Increased demand across these sectors suggests future revenue growth.
- Chart has received substantial commitments for its heat transfer systems (HTS), driven by a growing adoption of its IPSMR LNG liquefaction technology. This increased adoption and backlog are expected to enhance earnings by driving higher sales volumes.
- Operational throughput improvements and cost synergies are expected to bolster net margins and operating income. Chart has undertaken continuous global improvement efforts, such as repositioning manufacturing activities to optimize location efficiency.
- Enhanced digital offerings and increased service coverage are expected to drive higher aftermarket revenues. Chart's enhanced customer aftermarket digital portal and its efforts to increase covered sites placing orders offer potential for higher-margin service revenue.
- Chart’s debt reduction and cash flow optimization initiatives, including balance sheet optimizations and milestone billing coordination, are anticipated to lower leverage ratios and improve earnings per share as interest expenses decrease.
Chart Industries Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Chart Industries's revenue will grow by 9.7% annually over the next 3 years.
- Analysts assume that profit margins will increase from 4.0% today to 13.7% in 3 years time.
- Analysts expect earnings to reach $738.1 million (and earnings per share of $15.59) by about November 2027, up from $162.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $434.5 million.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2027 earnings, down from 43.8x today. This future PE is lower than the current PE for the US Machinery industry at 23.8x.
- Analysts expect the number of shares outstanding to grow by 4.04% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.
Chart Industries Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Slowing demand in China, particularly in industrial gas, could negatively impact revenue growth in the Cryo Tank Solutions segment.
- Foreign exchange headwinds, such as the $9.3 million negative impact reported in the quarter, pose a risk to net margins and earnings.
- Dependency on large, project-based orders introduces variability and timing risks, affecting revenue recognition and cash flow.
- The rising net leverage ratio, currently at 3.04, could constrain financial flexibility and potentially impact net margins due to debt servicing costs.
- Geopolitical risks associated with expanding markets, such as hydrogen projects in Egypt, might affect revenue and earnings predictability.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $191.59 for Chart Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $235.0, and the most bearish reporting a price target of just $138.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.4 billion, earnings will come to $738.1 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 8.0%.
- Given the current share price of $169.07, the analyst's price target of $191.59 is 11.8% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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