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Investing.com -- BofA Securities downgraded Air Liquide (EPA:AIRP) to “underperform” from “buy,” citing growing risks to its long-term growth outlook. The price objective was cut to €175 from €220, in a note dated Monday.
According to analysts at BofA Securities, while Air Liquide has historically benefitted from its defensive business model and a consistent track record, signs are emerging that the energy transition megatrend, a key pillar of the company’s growth strategy, is encountering delays and reduced momentum.
The analysts flagged that nearly half of Air Liquide’s growth capex is tied to the energy transition, but recent developments point to project delays, cancellations, and uncertain government policy support in both the U.S. and Europe.
In North America, multiple blue hydrogen projects have been delayed or halted. This includes delays in Linde (NYSE:LIN)’s Alberta project, Air Products (NYSE:APD)’ Louisiana project, LSB Industries’ Texas project, and Yara’s U.S. Gulf Coast project.
Air Liquide’s flagship energy transition initiative, the Baytown Blue H2 project with ExxonMobil (NYSE:XOM) in Texas, also faces uncertainty.
The project, which represents Air Liquide’s largest potential investment at $850 million, is contingent on the availability of U.S. Inflation Reduction Act 45V production tax credits.
Recent developments in Congress have cast doubt on the future of these subsidies, with the U.S. House voting to terminate the tax credits seven years early. The Senate has not yet voted.
In Europe, the picture is not much brighter. Air Liquide’s Kairos@C carbon capture project in Antwerp has faced repeated delays, while its partner ArcelorMittal (NYSE:MT) paused steel decarbonization plans in Dunkirk. Updates on Air Liquide’s CurtHyl electrolyser project in Rotterdam have also been scarce.
Despite Air Liquide’s ability to capture higher margins, which has supported its share price, BofA Securities noted that expectations for further margin expansion have now become more embedded in consensus forecasts, reducing the likelihood of additional upside surprises.
Management has guided for 200 basis points of margin improvement over 2025-2026, and consensus anticipates another 180 basis points of improvement in 2027-2028.
Valuation is another concern. Shares are trading at about 24 times 2026 earnings, close to an all-time high multiple and a significant premium to the Stoxx600 index.
BofA Securities argued that this valuation would only be justified if Air Liquide were on a trajectory for meaningfully faster and more profitable growth than it has historically delivered.
However, their forecasts suggest a 7.4% compound annual growth rate in operating income for 2024-2030, which is only marginally higher than the 7.2% seen over the past decade.
BofA Securities further stressed that the delays and uncertainty surrounding energy transition projects could lead to a reassessment of long-term growth expectations, which may weigh on Air Liquide’s valuation multiple.
They estimate that the company’s energy transition investment opportunity, which they previously modeled at around €35 billion over more than 10 years, may be cut by about 40% under current conditions.