What happened
Shares of Chart Industries (GTLS -1.13%) were rising on Wednesday, up 12% on the day as of 1:08 p.m. ET.
On March 17, cryogenic tank and gas-handling storage specialist Chart Industries completed the $4.4 billion acquisition of U.K.-based Howden, which makes industrial gas handling equipment, such as compressors, heat exchangers, steam turbines, and industrial fans. It's a significant acquisition for Chart and essentially doubles the size of the company.
Yesterday afternoon, the company released a presentation updating investors on the acquisition and reiterating the combined company's full-year 2023 and 2024 projected outlook.
Chart had sold off late last year when the deal was announced and then again amid March's regional banking crisis, as investors feared lower economic growth would hurt Chart's business; however, at least as of now, that doesn't appear to be the case.
So what
In the presentation, Chart reaffirmed its prior guidance for $1 billion in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in 2023 and $1.3 billion in 2024. Moreover, management noted demand has remained strong in both Chart's and Howden's businesses, and that there may even be additional revenue cross-selling opportunities ahead. Chart also disclosed that both the Chart's and Howden's stand-alone backlogs reached all-time records as of March 31.
The combined company should benefit from strong secular trends going forward, as the new business is exposed to a variety of attractive end markets. These include liquified natural gas storage and transportation, carbon capture, green hydrogen, wastewater treatment, space exploration, and other decarbonization ventures.
Management also claimed the addition of Howden would expand and diversify Chart's existing business, making it less cyclical while also increasing the proportion of revenue that comes from recurring revenues in aftermarket parts, repairs, and software subscriptions.
Now what
The industrial sector is an interesting place to look for opportunities today, given the passage of the Infrastructure Investment and Jobs Act, the CHIPS Act, and the Inflation Reduction Act, each of which has investments kicking in this year and going forward. These investments should benefit the industrial sector broadly -- especially for companies exposed to the clean energy transition.
On the other hand, the Federal Reserve's interest rate increases and the recent regional banking crisis have put pressure on industrial stocks, as they are perceived to be economically sensitive.
However, if we can avoid a bad recession, these companies should benefit from the strong long-term trends of manufacturing reshoring, the decarbonization transition, and other long-term tailwinds. Even prior to the acquisition of Howden, Chart grew 22.3% last year and had projected around 30% growth as a stand-alone company in 2023 in its fourth-quarter earnings release.
Acquisitions can also be unique situations, either for good or bad, in unlocking or destroying value. While Chart is taking on significant debt to fund the acquisition, it also projects hefty merger synergies.
So, if you conclude the acquisition is a net positive, Chart is definitely a name to put on your watch list to play the clean energy transition, as the stock remains far below its November 2022 highs.
