Profiting Off the Intersection of Energy and Infrastructure

Chart Industries (GTLS - commentary - Cramer's Take) is a leading independent global manufacturer of highly engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases. As an infrastructure supplier to the energy industry, Chart lies at the intersection of two major investment themes that I think will continue to work for some time.

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The advertising bombardment relating to T. Boone Pickens' "Pickens Plan" can't hurt Chart. A central component of the plan is to increase the use of natural gas in transportation.

For the Pickens Plan to work, money will have to be spent building out an infrastructure to transport the gas from remote areas to those where it is needed. Enter Chart, which supplies engineered equipment used throughout the global liquid-gas supply chain.

While the Pickens Plan ads may increase awareness of natural gas, Chart has been doing fine without it. Sales grew 24% in 2007, but backlog grew at twice that rate. The current backlog amounts to more than 60% of projected 2008 sales, offering high visibility.

What's more, demand continues to rise. In a recent note, Lehman Brothers estimated that the expansion plans of a single customer (Energy World Corporation) could mean more than $250 million in additional orders for Chart.

Justifying Investor Love

Although the stock price has doubled since the January market selloff, there are good reasons for Chart's outperformance. Namely, the company keeps beating analyst estimates by a wide margin.

Over the last 12 months, analyst earnings expectations totaled $1.62 per share prior to the announcement date. Chart's actual EPS over that period: $2.01.

Analysts now expect the company to earn $2.46 this year and $3.06 next year. Both of those estimates have risen by about a dime over the last three months, and if past is prologue, the actual earnings could be even higher. At 20 times this year's earnings, the company is trading in line with the consensus three- to five-year growth rate and smack in the middle of the valuation range it has enjoyed in its two years as a public company. While not dirt cheap, it certainly doesn't seem expensive.

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At the time of publication, Trent had no positions in the stocks mentioned, although positions may change at any time.

William A. Trent, CFA, is a freelance equity analyst based in the New York metro area. He has been an equity analyst since 1996 and is co-author of Understanding and Evaluating Prospectuses, Offering Documents, and Proxy Statements. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Trent appreciates your feedback; click here to send him an email.