3 Reasons to Buy Chart Industries (or Flowserve Corporation) Like There's No Tomorrow

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16-06-2025

Chart Industries and Flowserve recently agreed to merge in an all-stock deal.
The two companies outlined significant revenue and cost synergies.
Strangely, both bargain-priced stocks fell after the announcement, even as the merger looks beneficial.
10 stocks we like better than Chart Industries ›
Investors are always searching for new and exciting ways to play the AI revolution, with one being electricity providers. Specifically, nuclear energy stocks have taken off over the past year, given the newfound need for more low-carbon electricity.
In spite of that, some industrial stocks that supply the nuclear and natural gas industries really haven't moved very much. Case in point, equipment suppliers Chart Industries (NYSE: GTLS) and Flowserve Corporation (NYSE: FLS) decided to link up in a "merger of equals," on June 4.
The tie-up of these key equipment suppliers should save costs while also strengthening both companies' exposure to these crucial LNG and nuclear markets. After the announcement, both stocks look like huge bargains -- a rarity for any AI-exposed stock.
Chart Industries is a leader in cryogenic tanks, heat exchangers, fans, and blowers that handle industrial gases and liquids. Meanwhile, Flowserve is a leader in industrial valves, pumps, and flow-control equipment.
The companies believe that by combining, they'll be able to offer comprehensive end-to-end industrial systems for customers, from the engineering through aftermarket stages, thus enabling strong cross-selling revenue opportunities. Overall, management believes the tie-up can lead to an incremental 2% growth rate over what the companies would do independently.
There's two key markets that each company would like to serve better as a result of the deal: natural gas and nuclear -- each of which are growing in importance because of the accelerating demand for clean electricity from AI data centers.
As the following slide shows, Flowserve had only 2% of revenue coming from LNG before the merger, while LNG was a core business for Chart, at 15%. Meanwhile, Flowserve had a more significant exposure to nuclear plants, at 7% of trailing revenues, while Chart had 7% exposure to the nuclear, hydrogen, and helium markets combined.
While the rest of Chart and Flowserve's end-markets are typically mid-single digit growth markets, with some a bit higher and some a bit lower, the nuclear and LNG end markets are forecast to realize double-digit growth over the medium term, thanks to surging AI demand.
Aside from bolstering each company's growth prospects, the tie-up should also yield substantial cost savings. In conjunction with the merger, the companies projected $300 million in cost synergies, which they believe will be achieved over the next three years.
It should be noted that Chart exceeded its projected synergy targets following its 2023 Howden acquisition by a fair amount, which means that $300 million synergy target may also be conservative. So look for the combined company to significantly lower costs and boost margins post-merger.
On top of that, there's also a significant refinancing opportunity. Chart used a lot of debt to make the $4.4 billion Howden acquisition, and was still fairly leveraged as of this year. The Howden acquisition also occurred at a difficult time for the markets, so Chart's debt is at rather high and variable interest rates.
However, combining with Flowserve will lower the combined company's overall leverage ratio to just 2.0 times EBITDA, which will enable an investment-grade credit rating. That means the companies, when combined, should be able to refinance Chart's debt at lower rates, leading to additional cost savings.
Both Chart and Flowserve each appeared undervalued going into the merger as well. While it's usually not a good idea to "sell" or merge using stock when one's valuation is low, the fact that both stocks were trading cheaply lessens the negative effect of the stock-for-stock deal.
In fact, I recently ran a screen of specialty industrial equipment companies with market caps above $2 billion, and Chart and Flowserve came up as the cheapest and fourth-cheapest of those 39 stocks on a forward P/E basis at just 10 and 13 times this year's earnings expectations, respectively.
While Chart's low valuation may be due to its debt load, even on an enterprise value-to-EBITDA basis, with enterprise value factoring in the debt, the combined companies currently trade at just a 10 EV-to-EBITDA multiple. Many large-cap industrial conglomerates trade in a range of 15 to 20 times EBITDA.
With strong positions in some key growth markets, like LNG and nuclear power, I wouldn't expect this discount to last. Thus, both companies appear to be rare bargain-priced stocks with exposure to AI growth -- and will be especially big bargains after the merger closes later this year.
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Billy Duberstein and/or his clients have positions in Chart Industries. The Motley Fool has positions in and recommends Chart Industries. The Motley Fool recommends Flowserve. The Motley Fool has a disclosure policy.
3 Reasons to Buy Chart Industries (or Flowserve Corporation) Like There's No Tomorrow was originally published by The Motley Fool