JPMorgan has revised its price target for Chart Industries (NYSE: NYSE:GTLS), a leading manufacturer of highly engineered equipment servicing multiple applications in the energy and industrial gas markets, from $150.00 to $145.00, while retaining a Neutral rating on the stock.
The adjustment reflects moderated expectations for the second half of 2024, acknowledging a cautious growth forecast influenced by the uncertain U.S. political climate and the anticipated delay of significant orders.
The firm anticipates Chart Industries' third-quarter revenue to reach $1.09 billion, which is 4.2% lower than previous estimates and 3.9% below the consensus estimate of $1.13 billion. Despite this reduced revenue forecast, Chart Industries is expected to maintain robust margins. JPMorgan's third-quarter EBITDA prediction for the company is $266 million, 5% below the consensus estimate of $280 million, due to the slightly decreased total revenue projection.
The analysis also indicates that while the overall revenue is projected to grow by 5% quarter over quarter, this is less than the consensus estimate of a 9% increase. The expected stability in margins, with slight variations across different segments of the company's business, contributes to this outlook. Notably, Chart Industries had previously reduced its 2024 EBITDA guidance to $1.12 billion, which was a 10% decrease from the initial forecast of $1.24 billion, and its free cash flow (FCF) guidance to $438 million, a 27% drop from the earlier prediction of $600 million.
Under the leadership of CEO Jill Evanko, Chart Industries has transitioned towards a greater emphasis on service and project work as opposed to equipment and product sales. This shift means that a significant portion of the company's revenue is now recognized through the percentage of completion accounting method, which, while potentially leading to fluctuations in earnings recognition, generally yields higher margins.
In light of these considerations, JPMorgan has also revised downward its third-quarter 2024 inbound order estimate for Chart Industries to $1.1 billion from $1.2 billion, and the fourth-quarter forecast to $1.2 billion from $1.3 billion, due to the expectation that some larger orders may be postponed to 2025.
In other recent news, Chart Industries reported a 12% increase in orders to $1.16 billion and an 18.8% rise in sales to $1.04 billion in Q2 2024. Despite these robust numbers, the company's full-year 2024 sales are expected to fall short of both the consensus estimate and the company's own guidance.
The company's merger with Howden earlier this year has contributed to the stability and growth potential of its portfolio, a development that Morgan Stanley views favorably. The firm recently upgraded Chart Industries from Equalweight to Overweight and set a price target of $175.
Concurrently, Stifel maintained a Buy rating on the company, even with a drop in guidance due to revenue recognition delays.
However, Citi lowered its price target for Chart Industries from $210 to $190 due to backlog conversion challenges, while still maintaining a Buy rating. These changes came after Chart Industries' second-quarter earnings fell short of expectations, leading to a reduction in the full-year 2024 EBITDA guidance.
InvestingPro Insights
To complement JPMorgan's analysis, recent data from InvestingPro offers additional context on Chart Industries' financial performance and market position. The company's revenue growth remains strong, with a 70.25% increase over the last twelve months as of Q2 2024, reaching $3.9 billion. This aligns with JPMorgan's observation of the company's transition towards service and project work, which typically yields higher margins.
InvestingPro Tips highlight that Chart Industries is expected to see continued growth, with analysts anticipating sales growth in the current year. This supports JPMorgan's projection of quarter-over-quarter revenue growth, albeit at a more modest rate than consensus estimates. Additionally, the company's net income is expected to grow this year, which could potentially offset concerns about the revised EBITDA guidance.
It's worth noting that Chart Industries is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.11 as of Q2 2024. This suggests the stock may be undervalued considering its growth prospects, despite JPMorgan's price target reduction.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into Chart Industries' financial health and market position.
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