On Thursday, Wells Fargo adjusted its outlook on Chart Industries (NYSE:GTLS), reducing the price target to $146 from $151 while sustaining an Overweight rating on the stock. The revision reflects a modest tempering of revenue growth expectations for the third quarter of 2024. The firm noted that seasonal trends might lead to a softer Q3 but anticipate a stronger Q4 in 2024.
Wells Fargo's analyst mentioned the adjustments were part of their modeling changes, highlighting a slightly less robust revenue growth than previously projected for the third quarter of 2024. Despite these adjustments, the firm's forecasts for Chart Industries' earnings per share (EPS) in 2024 and 2025 remain only 3% below the consensus. However, their valuation year estimate for 2026 is approximately 2% above consensus.
The updated price target of $146 is derived from applying a 7.0 times multiple to the firm's 2026 earnings before interest, taxes, depreciation, and amortization (EBITDA) estimate. This is a change from the previous price target that was based on an 8.0 times multiple of the 2025 EBITDA estimate. The analyst emphasized that the medium-term outlook for Chart Industries remains unchanged.
Chart Industries reaffirmed its medium-term financial goals during an investor conference on September 4, 2024. The company's projections include double-digit organic revenue growth through 2026, with a gross profit margin in the mid-30% range for 2026, and an adjusted diluted EPS compound annual growth rate (CAGR) in the mid-40% range. The firm also expects a free cash flow (FCF) conversion rate of 95-100% and a return on invested capital (ROIC) in the mid-teens, including a year-over-year revenue growth of 10% in 2025.
The analyst concluded that Chart Industries is poised to generate substantial free cash flow, which should facilitate debt reduction. This financial performance is considered crucial in supporting the Overweight rating assigned to the company's stock.
In other recent news, Chart Industries has seen a series of adjustments in its financial outlook by various analyst firms. JPMorgan revised its price target for the company from $150.00 to $145.00, citing moderated expectations for the second half of 2024. The firm anticipates Chart Industries' third-quarter revenue to reach $1.09 billion, which is lower than previous estimates. Despite this, Chart Industries is expected to maintain robust margins, with JPMorgan's third-quarter EBITDA prediction for the company being $266 million.
Morgan Stanley upgraded Chart Industries from Equalweight to Overweight and set a price target of $175, acknowledging the company's focus on less oil-dependent sectors. The firm also highlighted the company's merger with Howden, which has contributed to the stability and growth potential of Chart Industries' portfolio.
Stifel maintained a Buy rating on Chart Industries, despite a drop in guidance due to revenue recognition delays. The firm also noted the commencement of the Venture Global's CP2 LNG project, which is expected to enhance Chart Industries' cash flows for the remainder of the year.
Citi, on the other hand, lowered its price target for Chart Industries from $210 to $190 due to backlog conversion challenges. Despite this, the firm maintained a Buy rating. These adjustments came after Chart Industries' second-quarter earnings fell short of expectations, leading to a reduction in the full-year 2024 EBITDA guidance.
InvestingPro Insights
Chart Industries' financial landscape, as revealed by InvestingPro data, offers additional context to Wells Fargo's analysis. The company's market capitalization stands at $4.29 billion, with a P/E ratio of 35.15 (adjusted for the last twelve months as of Q2 2024). This valuation metric aligns with an InvestingPro Tip indicating that GTLS is "trading at a high earnings multiple," which investors should consider in light of Wells Fargo's price target adjustment.
The company's revenue growth is a standout metric, with a 70.25% increase over the last twelve months as of Q2 2024. This robust growth supports Wells Fargo's maintained Overweight rating and aligns with the InvestingPro Tip that "analysts anticipate sales growth in the current year." Additionally, the EBITDA growth of 118.86% over the same period underscores the company's strong financial performance, potentially justifying the optimistic medium-term outlook discussed in the article.
However, investors should note that the stock price has fallen significantly over the last three months, with a -17.42% total return. This recent performance may reflect the market's reaction to the softer Q3 expectations mentioned by Wells Fargo.
For readers seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Chart Industries, providing a deeper dive into the company's financial health and market position.
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