Chart Industries Earnings: Firm Already Exceeding Expectations With Ownership of Howden
Chart Industries’ GTLS second-quarter results were very good. After updating our model, mainly to reflect slightly higher gross margins in 2023 and 2024 due to strong pricing, we’ve increased our fair value estimate to $180 per share from $165. Our narrow moat rating remains unchanged. Our revised EBITDA estimates stand at $787 million and $1.3 billion for 2023 and 2024, respectively, in line with management guidance. The firm has announced asset sales of $380 million to date, supporting its $500 million target related to the deal, and remains on track to reach 2.5-2.9 times net debt/EBITDA by mid-2024.
Chart’s management emphasized on the call that gross margins have the potential to reach the mid-30s over the coming years compared with 31% this quarter, due to a combination of pricing power and reduced material costs. Another key factor is revenue mix skewing 70% toward project work versus build and ship. This mix shift is effectively capturing higher margins via providing a more complete solution with Howden.
Chart is already exceeding expectations with Howden, in our view. After four months of ownership, it has already achieved 55% of its of year-one cost synergy target of $150 million and 63% of its $175 million commercial synergies. The commercial synergies target is starting to look conservative, as Chart flagged a $20 billion pipeline of opportunities over the next 24 months, including $1 billion in orders that include both Howden and Chart products in the next 12 months. A win rate of 40%-50% on the $20 billion suggests $8 billion to $10 billion in orders over the next 24 months, meaning $1 billion in quarterly orders are here to stay for the time being. 43 different partnership agreements have been expanded to include both Howden and Chart, and Chart expects 70% of the agreements to place orders in 2023. More than 500 different sites have been identified that include both Chart and Howden assets for targeted aftermarket service and repair opportunities.
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