On Monday, Morgan Stanley Chart Industries (NYSE:) shares were changed from Equal Weight to Overweight with a $175.00 price target. The adjustment reflects the company’s strategic shift in response to changing oil market conditions and its focus on sectors that are less dependent on oil.
The company acknowledges the impact of the expected decline in oil prices on its Oilfield Services and Equipment (OFSE) division, noting that this market is highly dependent on oil prices, demand and capital spending. However, Chart Industries’ limited exposure to crude oil – less than 5% of its “conventional energy” revenues – puts the company in a favorable position in the current environment.
Chart Industries’ primary portfolio consists of energy transition and renewable energy applications, and Morgan Stanley maintains a positive outlook on these sectors. The upgrade follows the company’s merger with Howden, which is expected to close around March 2023. The merger contributes to the stability and growth potential of Chart Industries’ portfolio.
When Morgan Stanley resumed coverage of Chart Industries earlier this year, it recognized the value of the company’s post-merger portfolio but viewed the stock as comparable to small- and mid-cap (SMID) companies on key metrics such as correction likelihood and risk-reward outlook, resulting in an equal-weight rating.
The upgrade to Overweight reflects a reassessment of Chart Industries’ position relative to OFSE’s broader coverage. Morgan Stanley now views Chart Industries as more attractive relative to other companies within its coverage, based on revisions, valuation and risk/reward outlook.
In other recent news, Stifel maintained its buy rating on Chart Industries despite a downward revision to its earnings outlook due to revenue recognition delays. The firm believes the start-up approval of Venture Global’s CP2 LNG project will boost Chart Industries’ cash flow for the remainder of the year.
Similarly, Citi lowered its price target on Chart Industries to $190 from $210, citing backlog conversion challenges, but maintained a buy rating. The adjustment came after Chart Industries reported weaker-than-expected second-quarter earnings and lowered its full-year 2024 EBITDA guidance.
These developments come after Chart Industries reported second-quarter 2024 results showing a 12% increase in orders to $1.16 billion and an 18.8% increase in sales to $1.04 billion. Despite these strong results, the company’s full-year 2024 sales are expected to fall short of both consensus estimates and the company’s own guidance.
These recent developments suggest that while Chart Industries faces some challenges, analysts at Stifel and Citi still see potential for the company’s future performance.
InvestingPro Insights
Given Morgan Stanley’s recent upgrade to Chart Industries, a look at InvestingPro data suggests it’s a company poised for growth, with significant revenue growth over the past 12 months as of Q2 2024. Revenue growth is impressive at 70.25%, and gross margins are at 32.42%, indicating strong operating efficiency. While the P/E ratio is fairly high at 194.42, the trailing 12-month adjusted P/E ratio of 33.74 suggests a more reasonable valuation.
Particularly relevant InvestingPro tips in the context of this article are the expected net income growth this year and the forecast for revenue growth this fiscal year. These insights are in line with Morgan Stanley’s optimistic view of Chart Industries’ future, especially given the company’s strategic shift towards natural gas, energy transition and renewable applications. For investors seeking more detailed analysis, InvestingPro offers additional tips on Chart Industries, including analyst earnings revisions and profitability forecasts for the company, at https://www.investing.com/pro/GTLS.
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