On Wednesday, Deutsche Bank adjusted its outlook on Air Products (NYSE:APD) & Chemicals Inc. (NYSE:APD), increasing the price target to $260 from $245 while maintaining a Buy rating on the stock. The revision follows the company's release of its fiscal second quarter earnings, which surpassed expectations with a 5% beat on earnings per share (EPS) due to stronger-than-anticipated volumes in the U.S. and Europe.
Air Products experienced a challenging fiscal first quarter, with its stock declining 16% after EPS missed forecasts, second quarter guidance fell below expectations, and projections for fiscal year 2024 were reduced. Additionally, the company faced delays in two of its projects. However, the company managed to rebound in the second quarter, affirming its full-year guidance, although the quarterly earnings distribution varied from initial predictions.
The third quarter EPS is projected to be 9% below guidance due to significant maintenance activities in the Americas, while the fourth quarter guidance is set at 5% above consensus, indicating a substantial 21% increase from the third quarter.
Despite the steep earnings ramp anticipated for the fourth quarter, which is supported by factors such as new plant startups, productivity measures, seasonally stronger demand, and improved LNG performance, investors have expressed skepticism. Deutsche Bank, however, believes that the targeted earnings ramp is within reach, albeit at the lower end of the guidance range.
No significant updates or changes were announced regarding Air Products' energy transition project backlog, which was seen as a positive sign. During a discussion about the NEOM green hydrogen project in Saudi Arabia, CEO Seifi Ghasemi hinted at the possibility of undisclosed offtake agreements by stating, "We have not signed any contracts that we are in a position to announce for that project yet."
Looking ahead, Deutsche Bank suggests that investor attention may soon turn to the expected July/August 2025 startup of the company's $1.3 billion Alberta Net-Zero blue hydrogen project. The successful commencement of this project is anticipated to begin validating Air Products' extensive $15 billion hydrogen and energy transition project backlog.
InvestingPro Insights
Following the upbeat fiscal second quarter results from Air Products & Chemicals Inc. (NYSE:APD), investors might be interested in the broader financial landscape of the company. According to InvestingPro, APD has demonstrated a commitment to shareholder returns, having raised its dividend for an impressive 54 consecutive years. This consistency speaks to the company's stable financial health and its ability to maintain dividend payments over extended periods.
From a valuation perspective, APD is trading at a P/E ratio of 21.53, suggesting a premium relative to near-term earnings growth. Despite this, analysts predict the company will remain profitable this year, with a solid track record of profitability over the last twelve months. The company's market capitalization stands at $52.54 billion, with a revenue of $12.15 billion over the last twelve months as of Q2 2024. However, it's worth noting that there has been a revenue decline of -7.47% during the same period, which investors should consider in the context of the company's future growth prospects.
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