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Tuesday, October 27, 1998
Chart Industries Inc.
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Phone: (440) 753-1490
Website: http://www.chart-ind.com
Price (10/26/98): $9 1/4
HOW DID IT FIND TROUBLE?
Even though the full-blown Asian flu has yet to cause any major symptoms domestically, there are still concerns about our economy. This has not helped the stocks of economically sensitive companies, such as Chart Industries.
Chart has seen the effects of the Asian situation and softness in the industrial gas market start to hit its orders for new equipment. The company's backlog decreased from $144.0 million in the first quarter to $134.8 million in second quarter, and the expectation is that orders will continue to be anemic for the balance of the year.
Mix in the market's current abhorrence of small capitalization stocks, which the company certainly qualifies as, and Wall Street has sold Chart right off the, well, chart.
BUSINESS DESCRIPTION
Chart Industries is actually a holding company for several subsidiaries. Among the companies Chart owns are ALTEC International, CRYENCO, CVI, Greenville Tube, Process Engineering, and Process Systems International. Some of the products Chart supplies are definitely the "coolest" around since the company specializes in cryogenic equipment. Chart's equipment is primarily used for extremely low temperature industrial processes. Among other things, the products are used to purify various industrial gases as well as to cool and liquefy gas for storage or transport.
The company is also a leading supplier of vacuum chambers and precision tubing. One of the primary uses of vacuum chambers is in satellite testing. The precision tubing the company supplies is used in high-specification applications, such as in nuclear power plants.
FINANCIAL FACTS
Income Statement
12-month sales: $221.2 million
12-month income: $28.6 million
12-month EPS: $1.19
Profit Margin: 12.9%
Market Cap: $228.5 million
Balance Sheet
Cash: $4.3 million
Current Assets: $76.6 million
Current Liabilities: $49.3 million
Long-term Debt: $20.6 million
Ratios
Price-to-earnings: 7.8
Price-to-sales: 1.03
Dividend Yield: 2.1%
HOW COULD YOU HAVE SEEN IT COMING?
It has been over a year since the Asian economic turmoil and its concurrent currency problems started making headlines. Even though only 8% of total sales in 1997 were destined for Asia, the weak yen makes besting Japanese suppliers on price that much more difficult. A significant number of the company's competitors hail from Japan. Savvy investors may have made the connection between events abroad and the company some time ago.
One won't find significant decreases in sales or profits when looking at Chart's financials. Actually, quite the opposite is true. Although much of the top-line growth is due to the company's recent acquisitions, sales in the second quarter were up over 36% compared to the previous year. The company's net income has also gone from $0.41 per share in the first half of 1997 to $0.62 per share in the first six months of this year. Looking at the numbers alone makes Chart actually appear to be quite the healthy little growth stock.
Nevertheless, the market does not care much about the past results; its focus is on future cash flows and profits. This is where the decreased order backlog has cost the company dearly on Wall Street. Furthermore, Chart, like all heavy equipment and machinery makers, is extremely dependent on a healthy economy. Wall Street is highly doubtful about the future. Therefore, Chart's outlook has come into question, too.
WHERE TO FROM HERE?
Perception has everything to do with any stock's current price, but the long-term value will be determined by how well a company performs. Right now the perception is that the economy is headed south, and that Chart is headed down, too. But if the economy continues on its robust growth track of the past few years, Chart should continue to fare quite well. On the other hand, should the situation abroad indeed infect the domestic economy, Chart's profits are likely to look a bit sickly, too.
Beyond a thriving economy, machinery suppliers also need low interest rates in order to flourish. The recent rate cuts announced by the Federal Reserve should help just about all the companies in the industry, Chart included. Another positive for the company is that the currency situation between the dollar and the yen appears to be normalizing a bit in recent weeks.
The company's financials shows the stock trading at extremely inexpensive levels. At only around 7x anticipated 1999 earnings that are expected to be depressed from the economic situation abroad, it's tough to call the stock anything but cheap. Investors willing to bet that Wall Street has overreacted to the negative prognostications about the economy would probably do themselves a favor to give Chart a closer look at these levels.
-Paul Larson
([email protected])
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