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Air Products (APD) Up 41% YTD: What's Driving the Rally?

Zacks Equity Research

Shares of Air Products and Chemicals, Inc. APD have surged around 41% so far this year. The company has also significantly outperformed its industry’s decline of roughly 25% over the same time frame. Moreover, it has trounced the S&P 500’s gain of around 15.7% year to date.

Air Products, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $49.7 billion and average volume of shares traded in the last three months was around 1,105.6K. The company has an expected long-term earnings per share growth rate of 12.1%, above the industry average of 10.2%.

Let’s take a look into the factors that are driving this industrial gases giant.

What’s Going in APD’s Favor?

Forecast-topping earnings performance in the last two quarters and healthy growth prospects have contributed to the rally in Air Products’ shares. The company is poised for growth on the back of its project investments, new business deals and acquisitions.

Air Products recorded profit from continuing operations of $488 million or $2.20 per share in third-quarter fiscal 2019 (ended Jun 30, 2019), up around 13% from $430.7 million or $1.95 in the year-ago quarter.

Adjusted earnings per share for the quarter were $2.17, up 11% from the year-ago quarter’s earnings of $1.95. It surpassed the Zacks Consensus Estimate of $2.14. The company gained from higher volumes and pricing in the quarter.

Air Products, in its third-quarter call, said that it now sees adjusted earnings for fiscal 2019 in the range of $8.20-$8.25 per share. This suggests more than 10% rise year over year at the midpoint.

The company also expects adjusted earnings for fourth-quarter fiscal 2019 in the band of $2.26-$2.31 per share, which indicates 13-16% rise year over year.

The Zacks Consensus Estimate for earnings for fiscal 2019 of $8.24 reflects an expected year-over-year growth of 10.6%. Moreover, earnings are expected to register a 15% growth in the fiscal fourth quarter.

Air Products’ strategic investments in high-return projects, productivity actions and contributions of acquisitions should drive its fiscal 2019 results. Notably, the Lu'An syngas project in China, which is now fully onstream, is contributing to the results in the company’s Industrial Gases – Asia segment. The company expects the Lu'An project to contribute more than 25 cents per share to its earnings in fiscal 2019.

Air Products has a total available capacity to deploy (over fiscal 2018-2022) nearly $17 billion in high-return investments, aimed at creating significant shareholder value. The company has already spent or committed more than half of this capacity.

Moreover, the acquisition of ACP Europe SA, the largest independent carbon dioxide business in Continental Europe, enables Air Products to serve existing customers better and tap new industrial gas growth opportunities. The buyout provides the company a strong platform to pursue further industrial gas growth in Europe.

Air Products also remains committed to boost productivity to improve its cost structure. The company is seeing positive impact of its productivity actions and expects to benefit from additional productivity and cost improvement programs in fiscal 2019.

Air Products and Chemicals, Inc. Price and Consensus


Air Products and Chemicals, Inc. Price and Consensus

Air Products and Chemicals, Inc. price-consensus-chart | Air Products and Chemicals, Inc. Quote

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include Kinross Gold Corporation KGC, NewMarket Corporation NEU and SSR Mining Inc. SSRM.

Kinross has projected earnings growth rate of 150% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have surged around 64% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

NewMarket has an expected earnings growth rate of 16.2% for the current year and carries Zacks Rank #1. Its shares have gained around 19% in the past year.

SSR Mining has an estimated earnings growth rate of 165.2% for the current year and carries a Zacks Rank #1. Its shares have shot up roughly 80% in the past year.

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