Air Products and Chemicals, Inc. APD is benefiting from its project investments, new business deals and productivity actions.
Shares of this industrial gases giant are up 14.6% over a year compared with the 21.2% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Air Products’ productivity actions, investments in high-return projects and new project wins are expected to drive its fiscal 2020 results. New projects are contributing to its volume growth. The company is also boosting productivity to improve its cost structure. It is seeing the positive impact of its productivity actions and is expected to benefit from additional productivity and cost improvement programs in fiscal 2020.
The company is also poised for growth on the back of its project investments. Notably, the company’s project in the United States, which is worth $500 million, showcases its core strengths and capabilities for supplying nitrogen from an air separation unit and hydrogen from a steam methane reformer. The project will likely boost the size and supply capacity of the company’s extensive hydrogen pipeline system in the Gulf Coast.
The company also recently completed the buyout of five steam methane reformer hydrogen production plants for $530 million from PBF Energy. The PBF deal is expected to be accretive to the company’s bottom line in fiscal 2020. Air Products also expects to complete the $12 billion Jazan gasification project in Saudi Arabia by October 2020.
Air Products has a total available capacity to deploy (over fiscal 2018-2022) around $18 billion in high-return investments, aimed at creating significant shareholder value. It has already spent or committed roughly 65% of this capacity.
Moreover, Air Products remains focused on maximizing returns to its shareholders leveraging strong balance sheet and cash flows. The company’s board, earlier this year, increased its quarterly dividend by more than 15% to $1.34 per share from $1.16, marking the largest dividend hike in its history. This also marks the 38th straight year of a dividend increase.
A Few Headwinds
Air Products faces headwind from lower merchant volumes in the Americas and EMEA (Europe, Middle East, and Africa). Disruptions due to the coronavirus outbreak hurt merchant volumes across these regions in second-quarter fiscal 2020.
The company sees volume pressure to continue moving ahead and expects it to be more pronounced in the fiscal third quarter amid the pandemic. It has also withdrawn its earnings guidance for 2020 due to the unknown duration and impacts of the pandemic. The company also has not provided earnings guidance for the fiscal third quarter due to uncertainties.
Air Products is also exposed to headwind from unfavorable currency movements. Currency swings had an unfavorable impact of 2% on sales in the fiscal second quarter, partly related to Chinese yuan and the euro. Currency had a negative impact on sales across all segments in the quarter. Unfavorable currency impact on the company’s adjusted earnings was 5 cents for the quarter. Currency may continue to affect the company’s sales and earnings.
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 are Barrick Gold Corporation GOLD, The Scotts Miracle-Gro Company SMG and Newmont Corporation NEM.
Barrick Gold has a projected earnings growth rate of 64.7% for the current year. The company’s shares have rallied roughly 120% in a year. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Scotts Miracle-Gro has an expected earnings growth rate of 17.7% for the current fiscal year. The company’s shares have gained roughly 70% in the past year. It currently carries a Zacks Rank #2.
Newmont has a projected earnings growth rate of 85.6% for the current year. The company’s shares have surged around 98% in a year. It currently has a Zacks Rank #2.
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