Air Products' (APD) Stock Up 18% In 6 Months: Here's Why
Zacks Investment Research | Jan 11, 2018 08:16PM ET
Shares of industrial gases giant, Air Products and Chemicals, Inc. (NYSE:APD) have gained around 18% over the last six months. The company has also outperformed its industry ’s gain of roughly 16% over the same time frame.
Air Products has a market cap of roughly $37.2 billion and average volume of shares traded in the last three months is around 896.4K. The company has a long-term (three-five years) expected earnings per share (EPS) growth rate of roughly 14.1%, higher than the industry average of 10.2%.
Let’s take a look into the factors that are driving this Zacks Rank #2 (Buy) stock.
What’s Driving APD?
Upbeat outlook and strong growth prospects have contributed to the gains in Air Products’ shares. Air Products expects adjusted earnings per share of $1.60-$1.70 for first-quarter fiscal 2018, up 9-16% from the year-ago quarter. For fiscal 2018, Air Products sees adjusted earnings per share of $6.85-$7.05, up 9-12% 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. Moreover, strategic investments in high-return projects, new business deals and acquisitions are expected to drive results in fiscal 2018.
Air Products, in July, inked a long-term gas supply agreement with Huntsman Corporation (NYSE:HUN) . Under the deal, Air Products will build, own and operate a new steam methane reformer and cold box in Geismar, LA. Air Products facilities which will supply hydrogen, carbon monoxide and steam to Huntsman's Geismar operations are expected to be onstream in Jan 2020. The new state-of-the-art facility will provide high reliability and sustainability with enhanced energy efficiency and will help to lower emissions.
The company is also expanding its footprint in China. Air Products has landed a second long-term oxygen and nitrogen supply contract with a leading global materials supplier in Guangdong in South China. The move will help to strengthen its position in the strategic industrial base as well as relationship with this global customer. Air Products and Yankuang Group also entered into an agreement for a $3.5 billion coal-to-syngas production facility to be constructed in Yulin City, Shaanxi Province, China.
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Air Products also remains on track in delivering on cost-reduction programs, which is likely to support margins. The company is making a good progress with its $600 million cost-cutting program and has already delivered more than $475 million of cost savings. Additionally, it plans to deliver the balance in next two-three years.
Moreover, Air Products has significant amount of cash to invest in core industrial gases business. The company expects to have at least $8 billion to deploy in strategic, high-return opportunities (including acquisitions and large industrial gases projects) to create shareholders value over the next three years.
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