Chart Industries - CTI
Grommit and all - I've enjoyed this thread as there is good discussion on fundamentally sound companies that are growing, not just a bunch of broken or penny stocks.
I'd suggest you take a look at CTI, which manufactures cryogenic (low temperature, high pressure) and high-vacuum equipment mainly used to purify, liquify, store, and transport industrial gases for the energy (Amoco, Exxon), semiconductor, aerospace (Loral satellites), transportation (Houston's LNG bus fleet), refrigeration, and medical (MRI cryostats for GE) sectors. Why is CTI undervalued?
1. Past Earnings Growth. Based on the most recent quarter, year-over-year sales and earnings grew 36% and 56% respectively; quarter-over-quarter sales and earnings grew at 36% and 37% respectively. The company has exceeded expectations for 7 or 8 straight quarters.
2. Future Earnings Growth. Trailing earnings of $1.18, current price of $19.25, for a PE of 16.5.
(Note: Yahoo! currently has incorrect earnings and PE - CTI recently had a 3:2 split and I think Yahoo! is adding together pre- and post-split earnings. Anyway, E-trade has the correct numbers at etrade.com.
According to Zacks, the FY98 earnings projection is $1.53, which represents a 30% increase over the next 6 quarters, for an annual ave. increase in earnings of 20%, which compares favorably to the current PE of 16.5. While this may not appear to be extremely undervalued at first blush, note that the FY98 estimate has not been changed even though the company has exceeded earnings estimates the past 2 quarters, recorded a record backlog, and recently acquired a company with $24 million in annual revenues. The co. is covered by only 2 analysts - I'd expect upward revisions as additional coverage is initiated.
Applying the current PE of 16.5 to the $1.53 yields a target price of $25.
Applying the projected growth rate of 20% to the $1.53 yields a target price of $30.
3. Expanding Margins. Over the past four quarters, gross and net margins were 30.4% and 10.4%, respectively. This most recent quarter, gross and net margins were 32.4% and 11.3%, respectively.
4. Backlog. The company has trailing revenues of $167 million, and an order backlog of $127 million. That's right, over half of their next years' sales are already booked as backlog. In their most recent quarter, they had $41 million in sales and $50 million in incoming orders, for a book-to-bill of 1.22. And most of this backlog is in their higher margin market segments, so future increases in both sales and gross margins are likely.
5. Acquisition. The company recently acquired a company called Cryenco (symbol CSCI), which was marginally profitable with annual sales of around $24 million. So, combine the backlog with new orders and the acquisition, and the company is well on the way towards $200 million in annual sales. (Note: as part of the acquisition, CTI's LT debt will be increased and margins may be affected. However, it provides them manufacturing capacity, new markets, access to proprietary technology to liquify natural gas, and they may be able to squeeze out some overhead costs (i.e., the old management).
6. Price to Sales Ratio. Applying a reasonable forward PSR of 2 to $200 million in sales, with 15 million outstanding shares, yields a target price of $27.
7. CTI has a chart to die for. After a three month consolidation, it recently had a major break out at $17, followed by a minor break out at 19. So, barring a major market correction, there is limited downside risk with no upside resistance.
8. Excellent management. The company is 50% owned by management, so they are motivated to enhance shareholder value. They recently reduced LT debt, completed a 1 million share buyback, a 3:2 split, and added production capacity both in existing facilities and through the recent acquisition.
CTI has a SI thread at exchange2000.com, although only 4 or 5 of us seem to own it an participate, so it's pretty quiet, no hype.
CTI profile, news, research, and chart at quote.yahoo.com
CTI has a homepage at chart-ind.com.
CTI's most recent 2Q earnings can be found at biz.yahoo.com.
CTI's Edgar filings are at sec.gov
By my estimation, any way you slice it, CTI has a target price of $25 to $30, reflecting an increase of 25% - 50% from today's price, with very little downside risk given the order backlog and support at 19 and 17. I'd appreciate any feedback. |
