On Monday, Morgan Stanley (NYSE:MS) upgraded Chart Industries (NYSE:GTLS) stock from Equalweight to Overweight and established a price target of $175.00. The adjustment reflects a strategic shift in response to changing oil market conditions and the company's focus on less oil-dependent sectors.
The firm acknowledged the impact of lower assumed oil prices on the oilfield services and equipment (OFSE) sector, noting that this market is significantly influenced by oil prices, demand, and capital expenditures. However, Chart Industries' limited exposure to oil, which is under 5% of its 'traditional energy' revenue, positions the company favorably in the current environment.
Chart Industries' primary portfolio consists of natural gas, energy transition, and renewable applications, areas where Morgan Stanley maintains a positive outlook. The upgrade follows the company's merger with Howden, which was completed around March 2023. The merger has contributed to the stability and growth potential of Chart Industries' portfolio.
At the time Morgan Stanley resumed coverage of Chart Industries earlier this year, the firm recognized the value in the company's portfolio post-merger but considered the stock to be in line with small to mid-cap (SMID) companies in terms of key metrics like revisions potential and risk-reward outlook. This led to an Equalweight rating.
The current upgrade to Overweight reflects a reevaluation of Chart Industries' position relative to the broader OFSE coverage. Morgan Stanley now finds Chart Industries more attractive based on revisions, valuation, and risk-reward outlook compared to other companies in their coverage universe.
In other recent news, Stifel maintained a Buy rating on Chart Industries, despite the company's drop in guidance due to revenue recognition delays. The firm believes the approved commencement of the Venture Global's CP2 LNG project will enhance Chart Industries' cash flows for the remainder of the year.
Similarly, Citi has lowered its price target for Chart Industries from $210 to $190 due to backlog conversion challenges, while maintaining a Buy rating. This adjustment came after Chart Industries' second-quarter earnings fell short of expectations, leading to a reduction in the full-year 2024 EBITDA guidance.
These developments follow Chart Industries' announcement of a 12% increase in orders to $1.16 billion and an 18.8% rise in sales to $1.04 billion in its Q2 2024 earnings. Despite these strong performance numbers, the company's full-year 2024 sales are expected to fall short of both the consensus estimate and the company's own guidance.
These recent developments suggest that while Chart Industries faces some challenges, analysts from Stifel and Citi still see potential in the company's future performance.
InvestingPro Insights
In light of Morgan Stanley's recent upgrade of Chart Industries, a glance at the InvestingPro data reveals a company poised for growth with a robust revenue increase over the last twelve months as of Q2 2024. The revenue growth stands at an impressive 70.25%, with a gross profit margin of 32.42%, indicating strong operational efficiency. Despite a significant P/E ratio of 194.42, the adjusted P/E ratio for the last twelve months signals a more reasonable valuation at 33.74.
Two InvestingPro Tips that are particularly relevant in the context of the article are the expectation of net income growth this year and the anticipation of sales growth in the current year. These insights align with Morgan Stanley's optimistic view of Chart Industries' future, especially considering the company's strategic shift towards natural gas, energy transition, and renewable applications. For investors looking for more detailed analysis, InvestingPro offers additional tips on Chart Industries at https://www.investing.com/pro/GTLS, including analysts' earnings revisions and the company's profitability forecasts.
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