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Airgas Hits New 52-Week High

Zacks Equity Research

Shares of industrial, medical and specialty gases, and hardgoods supplier Airgas, Inc. (ARG) reached a new 52-week high of $112.60, on Dec 27. Airgas has a market cap of $8.2 billion. Average volume of shares traded over the last three months stood at approximately 336.522.

Shares of Airgas started escalating following its strong fiscal second quarter results on Oct 23. Airgas posted adjusted earnings of $1.25 a share in the second quarter, up 19% from $1.05 in the year-ago quarter. Revenues in the reported quarter grew 4% year over year to $1.28 billion. Acquisitions aided sales growth by 2%, with organic sales up 2% and a 4% increase in gas and rent, but were partially offset by a 2% decline in hardgoods.

Airgas expects adjusted earnings per share for the third quarter of fiscal 2014 to increase 11% - 15% year over year to $1.15 - $1.20. For fiscal 2014, Airgas expects earnings in the range of $4.85-$5.00, reflecting 11% - 15% annual growth.

Airgas will benefit from its strong acquisition pipeline. The company has a current target of $150 million in acquired sales in fiscal 2014. Management is optimistic about reaching its target in fiscal 2014 on the back of a strong pipeline. Airgas’ SAP implementation is now almost complete, and the company expects to realize a minimum of $75 million in annual run-rate operating income benefits.

Furthermore, strategic product sales (safety products, CO2, medical, bulk and specialty gas) now generate over 40% of overall sales. These strategic products have a strong growth profile due to their use in favorable customer segments, application development, increasing environmental regulation, strong cross-sell opportunities or a combination of these factors.

Non-residential (energy & infrastructure) construction sector accounts for 14% of Airgas sales. Airgas is seeing signs that nonresidential construction activity will improve next year. Order flow has started for a couple of large projects and a number of rumored large projects have now moved into the planning and permitting stages. Airgas will benefit if it can win these projects.

Recently, Airgas also declared that its operating units will increase the prices on helium by 20%. This increase is for countering rising costs for obtaining and distributing the gas.

Currently, Airgas carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are Asahi Kasei Corporation (AHKSY), Johnson Matthey plc (JMPLY) and Clean Diesel Technologies Inc. (CDTI). While Asahi Kasei and Johnson Matthey carry a Zacks Rank #1 (Strong Buy), Clean Diesel holds a Zacks Rank #2 (Buy).

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