On Tuesday, UBS analyst upgraded Chart Industries (NYSE:GTLS) stock, listed on the New York Stock Exchange under the ticker NYSE:GTLS, from Neutral to Buy. The new price target set by the firm is $170.00, an increase from the previous target of $152.00.
The upgrade comes as the analyst recognizes improved execution within the company and the positive impact of the Howden acquisition on Chart Industries' debt reduction, which they believe is not fully appreciated by the market.
According to the analyst, Chart Industries is expected to see a 32% increase in sales and a 52% growth in EBITDA in 2024. The firm's estimates for the company's earnings per share (EPS) in 2024 are 2.4% higher than the consensus. The Howden deal, while initially increasing the company's net debt by approximately $3.4 billion and causing a multiple de-rating, has also reduced the cyclicality of Chart Industries' portfolio by expanding the aftermarket service business.
The analyst projects that Chart Industries will generate over $600 million in free cash flow (FCF) in 2024 and anticipates the net debt to decrease from $3.7 billion to $3.1 billion by the end of 2024, which would be approximately 2.5 times the net debt. It is suggested that once the leverage reaches this level, the company could experience a multiple expansion of 2 to 3 times, although this potential expansion is not factored into the current price target.
Looking further ahead, the analyst anticipates that Chart Industries will continue to reduce its net debt, potentially falling below $2.0 billion by the end of 2026. This debt reduction could position the company to start a buyback program once it achieves its leverage ratio targets. The commentary indicates a positive outlook for the company's financial strategy and its potential effects on shareholder value.
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