On May 8, we issued an updated research report on industrial gas
). While the company should benefit from its cost reduction
measures, new business deals and strategic investments, it is
exposed to high energy costs and challenges in its tonnage gases
Air Products' earnings for second-quarter fiscal 2014 (ended Mar
31, 2014), reported on Apr 23, missed the Zacks Consensus Estimate
while sales beat. Sales rose as a decline in the Equipment and
Energy division was more than offset by gains in other businesses.
The company narrowed its earnings guidance for the full year.
Air Products, a Zacks Rank #3 (Hold) stock, benefits from a diverse
customer base, sustained pricing power and cost-reduction measures.
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.
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.
Air Products is also keeping a tight control on expenses and
undertaking work process improvement initiatives. Moreover, it
remains committed to maximize returns to shareholders. The
company's Board, in Mar 2014, raised its quarterly dividend by 8.5%
to 77 cents per share.
However, Air Products' tonnage gases business continues to face
challenges due to maintenance outages. Lower volumes and higher
maintenance spending may impact profit in this division. The
company sees higher level of maintenance activity and some outages
in this business in the third quarter.
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
Compass Minerals International Inc.
The Dow Chemical Company
Kronos Worldwide, Inc.
). While Compass Minerals holds a Zacks Rank #1 (Strong Buy), both
Dow and Kronos carry a Zacks Rank #2 (Buy).
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AIR PRODS & CHE (APD): Free Stock Analysis
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