Air Products and Chemicals, Inc. APD is poised for growth on the back of its project investments, new business deals and acquisitions. The company’s productivity and price hike actions are also likely to support its margins amid headwind from higher power costs.
Shares of the industrial gases giant, which currently carries a Zacks Rank #3 (Hold), have lost 7.4% over the past year, outperforming the 27.5% decline of its industry.
What’s Going in APD’s Favor?
Air Products, in its fourth-quarter fiscal 2018 call, said that it sees adjusted earnings for fiscal 2019 to be in the range of $8.05 to $8.30 per share, reflecting a 10% increase at the midpoint year over year. The company also expects adjusted earnings to be in the band of $1.85 to $1.90 per share for first-quarter fiscal 2019, up 5% at the midpoint year over year.
Air Products has built a strong project backlog. These projects are anticipated to be accretive to earnings and cash flow over the next few years. It will also benefit from its actions to cut operational costs. The company is seeing positive impact of its productivity actions and expects to benefit from additional productivity and cost improvement programs in fiscal 2019.
Moreover, strategic investments in high-return projects, new business deals and acquisitions are likely to drive fiscal 2019 results. The Lu'An syngas project in China, which is now fully onstream, significantly contributed to the sales growth in the company’s Industrial Gases – Asia segment in the fiscal fourth quarter. 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 capacity to deploy at least $14 billion in high-return investments over the next four years, aimed at creating significant shareholder value.
Air Products also remains committed to maximize returns to shareholders. The company, in early 2018, raised its quarterly dividend by 16% to $1.10 per share. In fiscal 2018, it returned about $900 million (roughly 40% of its distribution cash flow) to shareholders through dividends.
Air Products faces headwind from high power costs in Europe. The company saw a sharp increase in power cost in the region in the last reported quarter which largely contributed to a decline in margins in its EMEA (Europe, Middle East, and Africa) business in the quarter. While the company is taking appropriate pricing actions to recover the higher costs, it is expected to face the headwind in the near term. As such, margins in the EMEA business are expected to remain under pressure.
Air Products is also seeing lower sales in its Global Gases unit due to lower activity from the Jazan project in Saudi Arabia. The company expects the headwind to continue in fiscal 2019.
Air Products and Chemicals, Inc. Price and Consensus
Air Products and Chemicals, Inc. Price and Consensus | Air Products and Chemicals, Inc. Quote
Stocks to Consider
A few better-ranked stocks worth considering in the basic materials space include Ingevity Corporation NGVT, Quaker Chemical Corporation KWR, Israel Chemicals Ltd. ICL.
Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have gained 19% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2 (Buy). Its shares have gained 22% in the past year.
Israel Chemicals has an expected earnings growth rate of 5.4% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 30% over the past year.
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