Here's Why You Should Hold Onto Air Products (APD) Stock Now
Zacks Investment Research | Mar 16, 2020 10:02PM ET
Air Products and Chemicals, Inc.’s (NYSE:APD) is poised for growth on the back of its project investments, new business deals and acquisitions.
Shares of this industrial gases giant are down 2.7% over a year compared with the 49.8% decline of its industry .
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Factors Aiding Air Products
Air Products, on its fiscal first-quarter earnings call, said that it expects adjusted earnings of $9.35-$9.60 per share for fiscal 2020, suggesting a 14-17% rise from the year-ago reported figure. The company also expects adjusted earnings of $2.10-$2.20 for second-quarter fiscal 2020, indicating a 9-15% rise year over year.
Air Products’ productivity actions, investments in high-return projects and new project wins should drive its fiscal 2020 results. The company is boosting productivity to improve its cost structure. It is seeing positive impact of its productivity actions and is expected to benefit from additional productivity and cost improvement programs in fiscal 2020.
Air Products is also poised for growth on the back of its project investments. Notably, the company’s latest 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. This marks Air Products' largest investment so far in the United States. The project will likely boost the size and supply capacity of the company’s extensive hydrogen pipeline system in the Gulf Coast.
The company has a total available capacity to deploy (over fiscal 2018-2022) more than $18 billion in high-return investments, aimed at creating significant shareholder value. It has already spent or committed more than half of this capacity.
Moreover, Air Products remains committed to maximizing returns to shareholders. 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 Concerns
Air Products faces some headwind from higher expected maintenance spending in the fiscal second quarter. It expects higher maintenance costs for the quarter due to planned life extension work on certain facilities. Higher costs may affect margins in its Industrial Gases — Americas segment.
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Moreover, the company’s Industrial Gases — Asia segment faces challenges in the fiscal second quarter from the Chinese Lunar New Year holiday which was extended by the Chinese authorities to contain the outbreak of coronavirus. The company expects slowdown due to the Chinese New Year to impact growth in the second quarter. This is likely to impact sales and margins in Air Products’ Asia business.
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