On Aug 7, we issued an updated research report on industrial gas
). While the company is benefiting from its cost reduction actions,
new business deals and strategic investments, it remains exposed to
high energy costs and challenges in its tonnage gases business.
Air Products' earnings for third-quarter fiscal 2014 (ended Jun 30,
2014), reported on Jul 23, beat the Zacks Consensus Estimate while
sales missed the same. Sales rose as a decline in the Tonnage Gases
division was more than offset by gains in other businesses. The
company tightened its earnings guidance for the full year.
Air Products, a Zacks Rank #3 (Hold) stock, benefits from a diverse
customer base, cost-reduction measures and sustained pricing power.
New business deals and strategic investments are expected to
support results in fiscal 2014. Moreover, the acquisition of a 67%
stake in Chilean industrial gas company, Indura S.A., has ushered
in substantial growth opportunity for Air Products.
Air Products is also keeping a tight control on expenses and
undertaking work process improvement initiatives. The company
remains on track in delivering on its cost reduction programs
(announced in 2012 and 2013), which should support its margins this
We are also encouraged by incremental opportunities in the
liquefied natural gas (LNG) space. Air Products has been chosen for
a major off-shore LNG project in Malaysia, representing a
significant opportunity for its LNG technology and equipment. The
LNG technology is gaining importance as it meets the increasing
global need for cleaner energy.
However, Air Products' tonnage gases business continues to face
challenges. Lower polyurethane intermediates (PUI) volumes and
maintenance spending may impact profit in this division. Moreover,
helium volumes remain weak due to feedstock supply constraints and
weak packaged gases demand in Europe.
High energy costs also pose a threat to margin expansion. In
addition, shutdown of the polyurethane intermediates (PUI) business
is expected to have an earnings headwind of 10 cents per share in
Other Stocks to Consider
Other chemical stocks worth considering include Celanese
), LyondellBasell Industries NV (
) and Johnson Matthey plc (
). All of them carry a Zacks Rank #2 (Buy).
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