Air Products & Chemicals stock upgraded, target raised on strategic moves

On Monday, Evercore ISI raised the rating for Air Products (NYSE:APD) & Chemicals Inc. (NYSE:APD) shares from In Line to Outperform, increasing the price target to $365 from $305. The adjustment comes as the firm recognizes significant changes in the company's capital allocation and risk management strategies, which are believed to enhance investor confidence.

The firm acknowledges that recent strategic moves by Air Products & Chemicals have improved the company's outlook. Notably, the company secured a low carbon hydrogen offtake agreement with TTE, exited the LNG equipment business, and provided clarity on the succession planning for its long-serving CEO. These developments have contributed to a more transparent future for the company, particularly as it approaches its fiscal year 2025 guidance.

Analysts at Evercore ISI have suggested that the path to the company's earnings per share (EPS) of $13.50 for FY25 appears relatively risk-adjusted and could alleviate investor concerns about potential earnings hiccups. This anticipated EPS is attributed to the timing of project starts in Taiwan and Canada, along with the residual benefits from FY24 ramps.

Despite previous concerns regarding Air Products & Chemicals' ventures into low carbon hydrogen, which were seen as increasing project and commercial risks, the firm now sees a pathway to risk mitigation. By limiting the scope to traditional industrial gas projects and reducing commercial uncertainties, the company is expected to maintain its 8-10% EPS growth trajectory while potentially achieving a higher multiple.

In their statement, Evercore ISI emphasized the potential for a higher valuation multiple should the market recognize and credit the company's substantive changes. The new price target of $365 reflects roughly 27 times the firm's FY25 earnings estimate.

In other recent news, Air Products & Chemicals Inc. has garnered significant attention from analysts and investors alike. BMO Capital maintained an Outperform rating, with a price target of $323, following news that investment firm Mantle Ridge has acquired a stake in Air Products.

This development is seen as a potential catalyst for enhancements within the company. Citi also revised its outlook on Air Products, raising its price target to $345 while maintaining a Buy rating. The firm cited the influence of Mantle Ridge's stake and the potential for strategic shifts as key factors for this adjustment.

Air Products has reported robust financial results recently, exceeding third-quarter earnings expectations with an adjusted EPS of $3.20 and reaffirming its full-year earnings guidance. This strong performance reflects the company's confidence in its growth strategy and ongoing projects.

The company has also undertaken significant initiatives in the clean hydrogen market, securing a green hydrogen supply agreement with TotalEnergies (EPA:TTEF) and planning to sell its LNG technology and equipment business to Honeywell (NASDAQ:HON).

These recent developments have positioned Air Products for potential growth, with analysts from BMO Capital and Citi expressing confidence in the company's strategic direction. However, the involvement of Mantle Ridge is expected to bring about further changes, potentially impacting the company's shares and future performance. Despite these shifts, Air Products continues to navigate the industrial gas market while laying the groundwork for future growth through strategic initiatives and project developments.

InvestingPro Insights

Air Products & Chemicals Inc. (NYSE:APD) continues to demonstrate strong financial health and market positioning, aligning with Evercore ISI's upgraded outlook. According to InvestingPro data, the company boasts a market capitalization of $63.47 billion, reflecting its significant presence in the industrial gases sector.

InvestingPro Tips highlight APD's impressive dividend history, having raised its dividend for 41 consecutive years and maintained payments for 54 years. This consistent dividend growth underscores the company's financial stability and commitment to shareholder returns, which could be a key factor in Evercore ISI's positive view on the stock.

The company's P/E ratio of 24.67 and Price to Book ratio of 4.2 suggest that while the stock may be trading at a premium, investors are willing to pay for APD's quality and growth prospects. This valuation aligns with the InvestingPro Tip indicating that APD is trading near its 52-week high, further supporting Evercore ISI's bullish stance.

For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a deeper understanding of APD's market position and future potential.

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