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Air Products and Chemicals Shares Drop About 5% as Q4 Earnings Miss Estimates

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Air Products and Chemicals, a world-leading industrial gases company, reported a lower-than-expected profit in the fourth quarter of the fiscal year 2020 as the COVID-19 pandemic continued to weigh, sending its shares down about 5% in pre-market trading on Wednesday.

The industrial gases company reported GAAP EPS of $2.19, down 4%, including an estimated $0.15-$0.20 negative impact from COVID-19; GAAP net income of $495 million, down 5%; and GAAP net income margin of 21.3%, down 140 basis points. Adjusted EPS came in at $2.19, also down 4%. That was also lower than the market expectations of $2.21 per shares.

“We expect a negative response to shares as results in the quarter were below both Morgan Stanley and consensus, and F2021 guidance was not provided. Any colour on F2021 and/or the timing of the Jazan project on today’s conference call is likely to be swing factors for the stock,” said Vincent Andrews, equity analyst at Morgan Stanley.

Air Products shares fell about 5% to $294.64 in pre-market trading on Wednesday. However, the stock is up over 30% so far this year.

Air Products’ revenue rose to $2.32 billion in the fourth quarter of the fiscal year 2020 from previous $2.28 billion. Analysts had forecast $2.26 billion. Effects from the pandemic reduced earnings in the quarter by an estimated 15 cents to 20 cents a share, as merchant demand declined for industrial gasses in the Americas and overseas, the company said, reported by the Wall Street Journal.

Air Products and Chemicals Stock Price Forecast

Five equity analysts forecast the average price in 12 months at $343.75 with a high forecast of $363.00 and a low forecast of $317.00. The average price target represents a 10.90% increase from the last price of $309.97. All of those five analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $325 with a high of $400 under a bull-case scenario and $225 under the worst-case scenario. The firm currently has an “Overweight” rating on the industrial gases company’s stock. Air Products & Chemicals had its price objective raised by Wells Fargo & Company to $340 from $325. Wells Fargo & Company currently has an overweight rating on the basic materials company’s stock.

Several other analysts have also recently commented on the stock. Evercore ISI initiated coverage on shares of Air Products & Chemicals and set an outperform rating on the stock. Credit Suisse Group raised their price target to $317 from $254 and gave the stock an outperform rating. BMO Capital Markets raised their price target to $363 from $359 and gave the stock an outperform rating. At last, JP Morgan raised their price target to $310 from $285 and gave the stock an overweight rating.

Analyst Comments

“Offers the sanctity of more predictable/visible EPS growth (despite the recession) tied to “take or pay” capex led by a reliable capital allocator CEO who’s made significant open market share repurchases. NEOM green hydrogen project announcement allows decarbonization opportunities to become part of the investment thesis and for the stock’s EBITDA multiple to expand to recognize non-macro reliant & environmentally friendly earnings growth,” Morgan Stanley’s Andrews added.

“Air Products and Chemicals to benefit from: i) positive merchant gas pricing environment (F3Q results proved this is still intact despite COVID); ii) structurally improving returns from industry consolidation; and iii) ESG optionality in decarbonization technology.”

Upside and Downside Risks

Risks to Upside: 1) Merchant pricing continues to increase as industry rationality continues despite IP led volume weakness. 2) Project returns exceed expectations, driving better than expected margins

Risks to Downside: 1) V-shaped recover could cause more commodity-oriented names to outperform gases. 2) Delays and/or low utilization of Chinese coal-based projects.

Check out FX Empire’s earnings calendar

This article was originally posted on FX Empire

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