By Nichola Groom
June 7 (Reuters) - What a difference a decade makes.
Ten years ago, Chart Industries Inc was on theverge of bankruptcy after taking on too much debt during a spreeof acquisitions that included an equipment maker for storingcryogenic liquids like liquefied natural gas.
Today, those products, as well as others that are used tomake, transport and store LNG, have made Chart a winner in theU.S. shale gas boom and transformed the company into a darlingof those seeking to cash in on the push to use natural gas as afuel for transportation and industry.
Over the last few years, investment firms including ArtisanPartners Asset Management Inc, Vanguard and BlackRock have acquired stakes of more than 5 percent in Chart,and they have enjoyed quite a ride. The stock has doubled in thelast two years, including a 43 percent gain in 2013 alone. Someon the Street have signaled that it may be time to take profits,but big hitters in the stock are sticking with it.
"We think this is really just beginning," said Jim Canty, aportfolio manager with Clough Capital Partners in Boston,calling Chart "close to a pure play on the natural gas boom."
The rapid growth in shale gas output thanks to hydraulicfracturing has brought new investment in plants to produce LNGfor both domestic and overseas consumption. But to move naturalgas, it first must be supercooled into liquid form.
Enter Chart, which makes heat exchangers and tanks used inmaking and storing LNG. The company's products are also used inLNG fueling stations, which companies like Clean Energy Fuels, ENN Group and Royal Dutch Shell Plc arebuilding in the United States for the small but growing numberof natural gas-fueled trucks. Chart also make tanks that areused on those vehicles, rounding out its unique presence allalong the LNG-for-transport supply chain.
Chart, which has a market capitalization of more than $2.8billion, is the No. 1 or 2 supplier in all of its main productlines and has little direct competition among publicly tradedcompanies, according to analysts.
Sumitomo, Linde, Air Liquide,Air Products & Chemicals, Fuel Systems Solutions Inc and Westport Technologies compete with Chartin some areas, but many are also Chart customers.
Each of those stocks has gained this year, most in thedouble digits. But still those increases pale before Chart'smore than 40 percent rise.
Many of its competitors are larger and have more financialresources than Chart. But barriers to entry are high in the LNGequipment industry, analysts said, because of the complexity ofcooling gas to 260 degrees below zero Fahrenheit and thenstoring it. As a result, Chart is sometimes raised as apotential takeover target for General Electric, inparticular, as the conglomerate has bulked up its oil and gasequipment division, most recently with its deal to buy oilfieldpump maker Lufkin Industries.
Chart is also becoming a major player in China, which isfarther along in its adoption of natural gas as a transportationfuel. The company earlier this year landed two contracts worth acombined $85 million to provide equipment to PetroChina Co Ltd.
"You are sitting on a relatively small company that is rightat the center of one of the primary trends in world energy,"said Jonathan Compton, managing director of London-based BedlamAsset Management, which has more than $700 million undermanagement and began buying Chart stock more than a year ago.
"You can't deny that the stock price is pretty fully valued,but you have got a huge number of imperatives behind thisstock."
ROOM TO RUN?
Chart shares, which trade at more than 20 times analysts'expectations for 2014 earnings, are relatively expensive. Theaverage multiple for companies in the industrial machineryindustry is about 13.5, according to Thomson Reuters data.
And some investors, such as Wells Fargo, have decreasedsizeable positions in the past year.
The stock should be trading at $57.80, far below Thursday'sclosing price of $95.04, according to Thomson Reuters StarMine'sintrinsic value model, which considers analysts' growthestimates for five years and then projects that growthtrajectory over a longer period of time.
Bedlam's Compton said analysts are underestimating thecompany's earnings potential over the next three years, thoughhe added that quarterly numbers could be "lumpy" given thatrevenue from big projects will vary from quarter to quarter.
Longdley Zephirin, an analyst at the The Zephirin Group,estimates Chart is overvalued by about 30 percent and recommendsinvestors take profits. A slowdown in orders from PetroChinaafter this year's build out of fuel stations, storage tanks andtrailers for LNG could trigger a selloff, he said.
Chart expects additional orders from PetroChina and said thecompany would increase its market share in China, ChiefExecutive Sam Thomas told analysts in an April conference call.He added, though, that the Chinese market is competitive.
There are other risks as well.
More than a dozen companies are seeking permission from theU.S. Energy Department to send LNG abroad, but some lawmakershave warned the nation risks trading away the economic advantageof its abundant natural gas reserves if it approves unlimitedexports.
If there are delays in permitting liquefaction plants or therollout of LNG-fueled trucks slows, Chart could start to looklike less of a sure bet.
The adoption of natural gas as a transportation fuel "maynot happen in the accelerated timeframe that the stock may beanticipating," said Colin Rusch, an analyst with NorthlandSecurities.
Yet many on Wall Street believe Chart is still a good buy.Of sixteen analysts surveyed by Thomson Reuters I/B/E/S, 11 have"buy" or "strong buy" recommendations, while the remaining fiverate the stock a "hold." Zephirin, who has a "sell" rating, isnot included in that data.
Analysts' mean price target is $93.21, slightly below itscurrent level. The highest target price is $114 by Raymond Jamesanalyst Pavel Molchanov, who initiated coverage of the stocklast month with an "outperform" rating.
Clough Capital, which has about $4.2 billion undermanagement, bought Chart stock a little more than a year ago andhad 130,800 shares at the end of the first quarter. The firm hasno plans to back out now, according to Canty.
"We think we can hold it for multiple years," he said.
