One company that is considered a one-stop solution for all things natural gas is Chart Industries (NASDAQ: GTLS). Why is it called a one-stop solution? This is because it is the only company that is uniquely positioned to address the entire LNG value chain. From liquefaction and distribution to storage and end-use, the company provides a complete range of solutions to its customers.
Source:U.S.Energy Information Administration
The above graph shows that in 2013, the United States surpassed Russia as the biggest producer of natural gas in the world. Natural gas has, therefore, become a crucial element of future economic growth in the United States and elsewhere.
Strategic positioning of Chart Industries
The increase in the production of natural gas has driven its price down. This situation is likely to continue, and businesses are eager to make a switch to this cheaper and cleaner source of energy. However, as demand increases with significant switch from coal to gas and new fossil power plants being powered by gas, it portrays a solid outlook for the natural gas industry. Chart is well-positioned to capitalize on this solid outlook.
Most of Chart's competitors are 'partially' in the natural gas business. This is a hidden strength of Chart. The components required to build natural gas facilities are very specialized, making the market segmented. Chart's competitors suffer in this regard because they specialize in one, maybe two products, whereas Chart provides complete solutions for building natural gas facilities.
Chart is also well-positioned to exploit some of the biggest natural gas growth markets. China and India are on their way to becoming major consumers of LNG. China's latest five-year plan leaves no doubt about the validity of this forecast. The plan outlines how China is all set to increase the gas share in its energy mix to rise from 4% in 2010 to 8% in 2015 and 10% by 2020.China is also serious about developing its indigenous shale gas resources.
Impact on revenue and earnings
The company's third-quarter earnings were unexpected. Chart industries suffered because the investing public had started to expect too much from it. Due to higher-than-expected costs and changing schedules of its customers, the management was forced to reduce their expectations for top line and bottom line figures for the immediate future.
Source: Company Presentations
In order to estimate the future performance of a manufacturing company such as Chart, one needs to look at the quarterly orders fulfilled and the quarter-end backlog of the company. The line chart on the right shows that the quarter-end backlogs of the company are at their record high. The line on the left shows that in the third quarter, the company was not able to increase its output due to reasons mentioned above. To sum up, the backlog points out to a solid outlook for the company in 2014 as there are high hopes that the management will be able to resolve the issues that barred the company from increasing its output in the third quarter.
Extra source of income
The BioMedical business segment of the company has developed its own clientele. The segment manufactures biological storage systems and respiratory therapy systems. This segment expects an increase in the sale of oxygen respiratory systems once the European economic activities rebound and the Medicare competitive bidding process is complete.
Biomedical research is expected to increase in international markets, especially India and China. Chart's lab storage solutions will definitely see a surge in sales due to that. Further sales are expected to come from nursing homes, long-term care, home health care, and other end markets.
Charts' peers in the industry
One of the company's peers is Praxair, (NYSE: PX), which currently maintains a significant presence in Europe,Americas, and Asia. Praxair is well-established in the production, distribution, and sales of atmospheric and process gases, and surface coatings. Some of the industries it covers include water, chemicals, and health care industries. Praxair is no threat to Charts as it is partially engaged in the natural gas industry, unlike Charts. It is worthy to note that Praxair is a shareholder-friendly company. It recently increased its dividend by 8%, from $0.60 to $0.65 and maintains a forward yield of 2.07%
The second peer is Matrix Service Company (NASDAQ: MTRX). With focus on the U.S. and Canada markets, Matrix Service focuses on construction, fabrication, engineering and maintenance services. Some of the industries it services include petrochemical, oil, gas, minerals, and power. Matrix Service is experiencing a steady growth in revenue and earnings. The company's Q2 report shows a 44.2% YoY increase in revenue with a record backlog of $882.6 million on project awards.
Final word
Chart is a company of the future. Western countries see a promising future for themselves through the use of natural gas as a primary source of energy. Chart is extremely well-positioned to serve the natural gas and LNG needs of governments and businesses alike. Chart has successfully diversified its business as it entered into the profitable medical equipment market through its BioMedical segment. The company has a strong balance sheet that can allow the business to achieve organic and inorganic growth. In all, Chart makes a great addition to a long-term investment portfolio.
