Airgas Downgraded to Strong Sell - Analyst Blog

On May 31, 2014, Zacks Investment Research downgraded Airgas, Inc. ( ARG ), the supplier of industrial, medical and specialty gases and hardgoods, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On May 1, Airgas posted adjusted earnings of $1.15 a share for fourth-quarter fiscal 2014 (ended Mar 31, 2014), up 1% year over year, short of the Zacks Consensus Estimate of $1.19 per share as well as management's earnings guidance of $1.18-$1.23 per share.

For fiscal 2015, Airgas expects earnings per share in the range of $5.00 to $5.20, which reflects a 6% to 10% year-over-year rise. The guidance includes 11-16 cents per share negative year-over-year impact from variable compensation reset following a below-budget year.

One of the challenges faced by the company is the helium supply constraint encountered by the global industrial gas market. Airgas' helium suppliers continued to fall short of their volume commitments and the company expects some level of supply chain disruption during fiscal 2015 as well.

The American Institute of Architects' (AIA) Architecture Billings Index (ABI) rose to 49.6 in Apr 2014, from 48.8 in March. The ABI score was marked below 50, and any reading below 50 signifies a decline in billings.

Although the recently started nonresidential construction projects will be beneficial for Airgas in the near term, its railcar production is still being weighed down by weakness in mining and defense.

Following the fourth quarter earnings announcement, the Zacks Consensus Estimate for 2015 has gone down 5.9% to $5.11 per share. Likewise, the Zacks Consensus Estimate for 2016 fell 6.8% to $5.79 per share.

Other Stocks to Consider

Some other stocks in the same sector that warrant a look includes Compass Minerals International Inc. ( CMP ), L'Air Liquide SA ( AIQUY ) and Koninklijke DSM N.V. ( RDSMY ). While Compass Minerals holds a Zacks Rank #1 (Strong Buy), L'Air Liquide and Koninklijke carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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