Company Reports

Wide-moat-rated Air Products posted solid fiscal second-quarter results, as its adjusted EPS of $2.85 came in above management’s guidance range of $2.60 to $2.75 thanks to strong results in the Americas and Europe. We’ve trimmed our fair value estimate to $303 from $307, which reflects our slightly more conservative near-term revenue growth projections, but we continue to see the name as modestly undervalued.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

After taking a fresh look at industrial gas firms, we are upgrading our moat ratings for Air Liquide, Air Products, and Linde to wide from narrow, based on switching costs and intangible assets. The moat upgrade boosts our fair value estimates to EUR 185 from EUR 162 for Air Liquide, to $307 from $288 for Air Products, and to $425 from $398 for Linde.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

Narrow-moat-rated Air Products’ fiscal first-quarter revenue of $2.997 billion and adjusted EPS of $2.82 both fell short of FactSet consensus estimates of $3.195 billion and $3.00. This shortfall was driven by a slowdown in China, lower helium volumes in the electronics end market, higher costs for a sale of equipment project, and the impact of Argentina’s currency devaluation. Management expects the softness in Asia and helium to persist in the near term, which led to a full-year adjusted EPS guidance cut from $12.80-$13.10 to $12.20-$12.50. Based on the more muted near-term outlook, we’ve lowered our fair value estimate to $288 from $314.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

Media reports have picked up on leaked guidance for the hotly contested U.S. green hydrogen tax credit. While the rules have yet to be finalized, the initial reports point to slightly more restrictive guidance than hoped by many industry participants. Shares of hydrogen-exposed equities underperformed on Dec. 5, with the Global X Hydrogen exchange-traded fund down 2.9% versus the S&P 500 decline of 0.1%.

Narrow-moat-rated Air Products’ fiscal fourth-quarter adjusted EPS of $3.15 beat our estimate by $0.04. For full-year fiscal 2024 management anticipates adjusted EPS of $12.80 to $13.10, which implies a roughly 12.5% year-over-year increase at the midpoint. Despite the earnings beat and a solid outlook for fiscal 2024, the stock plunged by nearly 13%, which we think reflects the market’s concerns about the industrial gas firm’s project backlog. After rolling our model forward one year, we’ve reduced our fair value estimate to $314 from $319, as our slightly lower operating margin projections were partially offset by time value of money.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

We are maintaining our $319 fair value estimate for narrow-moat-rated Air Products following the industrial gas firm’s fiscal third-quarter earnings release. Management raised the bottom end of its full-year guidance and now anticipates adjusted EPS in the range of $11.40-$11.50 (up from $11.30-$11.50). We’ve made some puts and takes in our model, but nothing in the earnings release alters our long-term view of the firm.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

We are maintaining our $319 fair value estimate for narrow-moat-rated Air Products after the industrial gas firm reported its fiscal second-quarter earnings. We’ve made some puts and takes in our model, but a negative impact due to Air Products’ withdrawal from the Indonesia coal gasification project was offset by our slightly more optimistic near-term margin projections as well as time value of money. We view the name as modestly undervalued, with shares currently trading in 4-star territory.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

Narrow-moat-rated Air Products’ fiscal first-quarter adjusted EPS of $2.64 fell $0.06 short of the PitchBook consensus estimate, driving the stock down roughly 7% following the earnings release. Despite the earnings miss, management reiterated its guidance for full-year fiscal 2023 and continues to expect adjusted EPS in the range of $11.20 to $11.50. We’ve lowered our fair value estimate to $319 from $327, which reflects our slightly more muted near-term revenue growth and operating margin projections.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

Narrow-moat-rated Air Products announced a 50/50 joint venture with AES that plans to invest roughly $4 billion in a green hydrogen production project in Texas, expected onstream in 2027. Based on Air Products’ return target of at least $0.10 of operating income per dollar of investment, we estimate that the project could add over $0.70 to the firm's EPS when it becomes operational. After updating our valuation model, we’ve increased our fair value estimate for Air Products to $327 from $322.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

Narrow-moat Air Products ended its fiscal 2022 on a strong note, as full-year adjusted EPS of $10.41 increased 15% from last year and beat our estimate by $0.09. For fiscal 2023, management expects adjusted EPS of $11.20-$11.50, which implies roughly 9% growth at the midpoint even though the guidance bakes in a foreign-currency headwind of around $0.50. After rolling our model forward one year, we’ve increased our fair value estimate to $322 per share from $321.

Air Products benefits from operating in an industry with a very favorable structure. Despite selling industrial gases, which are essentially commodities, public industrial gas companies have consistently delivered lucrative returns because of their economic moats. Industrial gases typically account for a relatively small fraction of customers’ costs but are a vital input to ensure uninterrupted production. As such, customers are often willing to pay a premium and sign long-term contracts to ensure their businesses run smoothly. Long-term contracts and high switching costs contribute to industrial gas producers’ moats, helping them generate a predictable cash flow stream and lucrative returns.

Narrow-moat-rated Air Products reported solid fiscal third-quarter results, with adjusted EPS of $2.62 up 13% from the prior-year period. Management reiterated its full-year fiscal 2022 outlook and continues to anticipate EPS in the range of $10.20-$10.40. We’ve bumped up our fair value estimate to $321 from $317, mostly due to time value of money.