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Here's Why Air Products (APD) Should Be in Your Portfolio Now

Zacks Equity Research

Air Products and Chemicals, Inc.’s APD stock looks promising at the moment. The company’s shares have surged around 41% year to date. The industrial gases giant is poised for growth on the back of its project investments, new business deals and acquisitions.

Air Products has a Zacks Rank #2 (Buy) and VGM Score of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors.

Let's delve deeper into the factors that make Air Products’ stock a compelling investment option at the moment.

An Outperformer

Air Products has outperformed the industry it belongs to over a year. The company’s shares have popped 43.3% compared with roughly 35.9% decline recorded by the industry. Moreover, it has trounced the S&P 500’s gain of around 7.9%.



 

Upbeat Outlook

Air Products, in April, raised adjusted earnings per share guidance for fiscal 2019 to the range of $8.15-$8.30 from the previous expectation of $8.05-$8.30. This suggests 10% rise year over year at the midpoint.

The company also expects adjusted earnings for third-quarter fiscal 2019 in the band of $2.10-$2.15 per share, which indicates 8-10% rise year over year.

Rising Estimates

Earnings estimate revisions have the greatest impact on stock prices. Estimates for fiscal 2019 for Air Products have moved north over the past three months. Over this period, the Zacks Consensus Estimate for the year has moved up around 0.5%. The Zacks Consensus Estimate for fiscal 2020 has also increased roughly 1.2% over the same timeframe.

Healthy Growth Prospects

Growth prospects for Air Products look encouraging. The Zacks Consensus Estimate for earnings for fiscal 2019 of $8.22 for Air Products reflects an expected year-over-year growth of 10.3%. Moreover, earnings are expected to register a 14.2% growth in fiscal 2020. The company also has an expected long-term earnings per share growth of 12.3%, above the industry average of 11.2%.

Capital Deployment

Air Products remains committed to maximize returns to shareholders leveraging strong cash flow. In January 2019, the company raised its quarterly dividend by more than 5% to $1.16 per share. The move marked the 37th straight year that the company has raised quarterly dividend.

In fiscal 2018, the company returned about $900 million (roughly 40% of its distribution cash flow) to shareholders through dividends. It also paid dividend worth $483.1 million during the first six months of fiscal 2019.

Growth Drivers in Place

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) roughly $16 billion in high-return investments, aimed at creating significant shareholder value. The company has already spent or committed more than half of this capacity.

Earlier this year, the company also completed the buyout of ACP Europe SA, which is the largest independent carbon dioxide business in Continental Europe. The buyout enables the company to serve existing customers better and tap new industrial gas growth opportunities. Air Products noted that the acquisition provides it a strong platform to pursue further industrial gas growth in Europe and deliver value to customers.

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

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Materion Corporation MTRN, Flexible Solutions International Inc FSI and Israel Chemicals Ltd. ICL.

Materion has an expected earnings growth rate of 30.3% for the current year and carries a Zacks Rank #1. The company’s shares have gained around 16% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flexible Solutions has an expected earnings growth rate of 342.9% for the current fiscal year and carries a Zacks Rank #1. Its shares have surged around 171% in the past year.

Israel Chemicals has an expected earnings growth rate of 13.5% for the current year and carries a Zacks Rank #1. Its shares are up roughly 9% in the past year.

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