Chart Industries, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Chart Industries is a global manufacturer of highly engineered equipment and systems serving multiple applications in the industrial gas, and clean energy markets.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Chart Industries’ core business revolves around providing equipment and systems for the storage, distribution, vaporization, and application of industrial gases, including liquefied natural gas (LNG), hydrogen, biogas, and other cryogenic liquids. Their expertise is crucial across various industries, particularly in the booming clean energy sector.

Business Overview

Chart Industries operates across several segments:

  • Cryo Tank Solutions: This segment includes the design, engineering, and manufacturing of highly engineered cryogenic equipment used for storage, transport, and end-use applications of liquefied gases.
  • Heat Transfer Systems: This segment designs and manufactures heat exchangers, which are devices used in the processing and handling of liquefied gases.
  • Specialty Products: Focuses on custom-engineered process solutions for specialty applications, such as equipment for CO2 capture and utilization, and water treatment, and food and beverage processing.
  • Repair, Service & Leasing: Provides aftermarket service, repair, maintenance, and leasing of Chart’s equipment and other related products to customers worldwide.

Their revenue is well diversified across all these segments, creating a strong foundation for the business.

Revenue Distribution

  • A significant portion of their revenue is derived from the sale of cryogenic equipment and related products.
  • Sales are spread globally.
  • A large part of their revenue comes from LNG based technologies and applications.
  • They focus on end markets, such as clean energy, water treatment, and food and beverage processing
  • Clean Energy Transition: There is an accelerating global shift towards cleaner energy sources, creating a massive demand for technologies related to LNG, hydrogen, and biogas, all of which are key segments for Chart Industries.
  • Industrial Gas Demand: Industrial gases are crucial for various industries, including chemical manufacturing, food processing, electronics, and healthcare. There has been rising global demand for these gases.
  • Technological Advancements: There is rising demand for cutting-edge technology in cryogenic equipment, heat exchangers, and other specialized products. Customers in high-tech industries are also requiring very specialized products.
  • Increasing Regulations: Companies are required to follow ever-more stringent rules and certifications.

Competitive Landscape

  • Chart Industries operates in markets with relatively high barriers to entry due to technical and regulatory complexities. However, they still face competition from other players, particularly in the commodity-like parts of their product portfolio.
  • The company has been competing with the likes of Chart Ferox, Cryoquip, Taylor Wharton, and Gardner Denver. These companies also compete in global markets.
  • The industry is becoming more competitive due to increasing standardization and the emergence of new lower cost manufacturers.
  • Customers of Chart are concentrated, as they sell to energy infrastructure, industrial, and other large corporations.

What Makes Chart Different

  • Technological Expertise: Chart has an established history of innovating and engineering specialized equipment and systems.
  • Global Reach: Chart’s global presence allows it to serve clients in different markets and to be closer to customers.
  • Strong Relationships: They’ve built long-lasting relationships with many customers.
  • Diversified Portfolio: The company’s ability to serve multiple diverse end-markets reduces risk.

Financial Analysis

Chart Industries, Inc. has reported mixed financial results in recent quarters, characterized by fluctuating revenues and profitability impacted by acquisitions and fluctuating market conditions.

Recent Concerns & Problems

  • The company has experienced some issues with supply chain disruptions.
  • There are concerns about the overall global economy and the rising interest rates impacting its overall revenue.
  • They’ve made some acquisitions recently and the market seems to question the value they will get from them.
Earnings
  • Chart Industries reported a mixed set of results for the third quarter of 2023. They beat analyst revenue estimates of $840 million by reaching $873.5 million, however the stock fell.
  • Net income for the quarter was a mere $42 million, significantly lower than the prior year.
  • They’ve been having great sales, but margins and profits were not high enough and have been fluctuating.
  • Their recent acquisitions have had a positive impact on revenue but have yet to contribute significantly to profits.
Balance Sheet
  • The company has a reasonable amount of cash and cash equivalents, amounting to $239.2 million at the end of Q3 2024.
  • Total debt is a bit high amounting to $5.3 billion.
  • Net debt to EBITDA is around 3.3 x, which is a bit high but not too concerning.
  • Total equity of $1.7 billion seems healthy.
Cash Flow
  • Free cash flow generation has been fluctuating, but mostly is in the positive range.
  • Operating cash flows have remained strong.
  • Their investments have been in acquisitions.

Moat: 2 / 5

While Chart Industries possesses some elements of a narrow moat, including specialized technology and established relationships with customers, their industry position is still vulnerable to some competition. There is significant risk and vulnerability for a company that is reliant on innovation. They are competing in global markets where some competition can be stiff. Their regulatory moat is also not very strong. They are also heavily dependent on commodities markets, and could face volatility in revenues when commodity prices fall.

  • Intangible Assets (Limited): While they have specialized technology, it’s easily replicated by new entrants and the advantage it offers might be temporary. The company’s brands are mostly limited to specific customer groups, so brand moat is low.
  • Switching Costs (Moderate): There are limited switching costs for customers due to standardized manufacturing procedures.
  • Network Effects (Low): Chart Industries’ products and services are not directly dependent on the value of a network of users.
  • Cost Advantage (Moderate): Chart benefits from some scale economies, but its costs are still sensitive to material and labor costs.

Risks to the Moat and Business Resilience

  • Technological Innovation: Competitors developing new and more efficient technologies could erode Chart’s advantage.
  • Supply Chain Disruptions: They may still face supply chain disruptions due to global events, and it might impact their revenues.
  • Economic Downturn: A global recession would negatively affect their revenues and ability to achieve profits.
  • Increased Competition: Growing competition may result in price wars and reduced margins.
  • Regulatory Changes: Changes in environmental regulations could make certain parts of its production illegal.
  • Acquisition Risks: Their M&A strategy can sometimes lead to a decrease in profits. It all depends on how well the companies integrate and generate synergies.
  • Commodity Markets: As they’re reliant on energy and commodity markets, they are susceptible to volatility in the prices.

Understandability: 3 / 5

The core business of Chart Industries is relatively easy to grasp, but the intricacies of their manufacturing processes and the complex global regulatory landscape make it somewhat challenging to fully understand the nuances. They are not a consumer products company so it will require some familiarity with the industry to have a clear understanding.

  • Products: Relatively complex equipment and systems, not simple products.
  • Operations: Global operations make it a bit complicated to predict.
  • Financials: Financial statements are highly complex.

Balance Sheet Health: 4 / 5

Chart has maintained a mostly strong balance sheet with good equity and reasonable debt. However, some of their debt ratios and liabilities are on the high end.

  • Reasonable amount of cash.
  • Total debt is on a higher side.
  • Equity levels seem to be stable.