Is Chart Industries Finally Charting a Higher Course?

Since peaking in October, Chart Industries (NASDAQ: GTLS  ) has traded in a downward trajectory. The promise of liquefied natural gas, or LNG, demand hasn't paid off as expected, leading to a large sell-off in the stock. At the current price of $80, the stock trades at a similar level to when it first crossed $70 all the way back at the start of 2012. Similar situations in the market offer a level of intrigue considering the market is now less interested in a once-hot stock potentially offering a bargain. The investor has to dig into the story to derive whether the problem is the company or the market.

Chart Industries is mainly seen as a manufacturer of LNG equipment, but the company has recently been hit by declines in the smaller medical division. Mainly though, the company continues to face the struggles of a domestic LNG market that hasn't expanded fast enough and has also hit shares of Clean Energy Fuels  (NASDAQ: CLNE  ) and Westport Innovations (NASDAQ: WPRT  ) . The group in general fell on tough times to start 2014, but the good news is that Chart Industries has one key metric that sets it apart from the group.

Struggling orders
The real key to any business in the manufacturing sector is the level of backlog and orders. For the first quarter, Chart Industries' backlog dropped 1% from the fourth quarter to $722 million. The orders for the quarter were up $19 million from the prior year to reach $263 million. Unfortunately for a stock trading at a lofty multiple of nearly 26 times forecast earnings for 2014, investors that recently paid $130 for the stock back in October weren't expecting orders to decline nearly $25 million from the prior quarter.

All three divisions at Chart Industries were hit with lower orders for the quarter from the prior year, but the Energy & Chemicals segment saw a substantial drop to only $65 million, from $85 million in the prior quarter.

Even worse, a large North American LNG customer suspended a previously awarded order for the second quarter that caused a decline in revenue expectations for the year by up to $20 million. For the year, the company guided to a new earnings range of $3.00 to $3.40 per diluted share, down $0.10 on average from the previous expectations.

Group weakness
Though Chart Industries, Clean Energy, and Westport Innovations all play different roles in the market for turning natural gas into a transportation fuel via LNG, all of the associated stocks hit a prior peak and have sagged in 2014. Both Clean Energy and Westport Innovations maxed out back in early 2012, leaving Chart Industries as the clear favorite by the market for one major reason. Investors might want to note that Chart remains the only profitable player in the group. A disappointing year of earning $3 per share at Chart Industries sure beats a year of losing over $1 per share at Clean Energy or Westport Innovations.

Part of the better results from Chart Industries came from selling into the China LNG market that developed faster than in North America. Westport saw some benefits from a joint venture that sells truck engines in the country, but the extent of the benefits was greatly reduced, especially considering the lack of meaningful profits to date from the venture.

In general, though, Clean Energy continues to struggle because of the pace of converting domestic trucks to utilizing LNG for the fuel source after building out a highway network of fueling stations, while Westport has been hit by slower growth mainly due to the delay in releasing the much anticipated long-haul trucking engine more geared toward LNG use. Westport had previously built other engines suited for buses and refuse trucks that better utilizes compressed natural gas, or CNG, but the recent ISX12G engine is hopefully the game-changer for LNG demand in the U.S.

Bottom line
Chart Industries remains an interesting play on the infrastructure needs of the market slowly shifting toward using natural gas as a transportation fuel. Unfortunately for Chart, change happens slowly, and recent orders suggest a weak period for some time. While Chart appears slightly expensive, trading at nearly 20 times next year's earnings estimates, both Clean Energy and Westport Innovations remain highly speculative based on projected losses through at least 2015. Clearly, the best play in the group is the one already generating profits for shareholders, especially for those investors convinced of a strong future for LNG demand.

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