Air Products and Chemicals, Inc. (APD Quick QuoteAPD - Free Report) is expected to benefit from its investments in high-return industrial gas projects and productivity measures amid headwinds including higher energy costs.

The company’s shares are up 8.1% over a year, compared with a 1.5% rise recorded by its industry.

Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

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What’s Aiding APD?

Air Products is benefiting from investments in high-return projects, new business deals, acquisitions and productivity initiatives. It remains committed to its gasification strategy and is executing its growth projects. These projects are expected to be accretive to earnings and cash flows.

The company has a total available capacity to deploy (over fiscal 2018-2027) around $36.5 billion in high-return investments aimed at creating significant shareholder value. It has already spent or committed roughly 73% of the capacity.

The company, in October 2021, completed the asset acquisition and project financing transactions of the $12-billion Jazan project in in Saudi Arabia. It expects to close the Phase Two of this project in 2023.

Last year, it also announced the $4.5 billion world-class clean energy complex in Louisiana. The project, the company’s largest-ever investment, is expected to produce more than 750 million standard cubic feet per day of blue hydrogen for local and global markets by 2026.

Air Products, in April 2020, also completed the buyout of five steam methane reformer hydrogen production plants for $530 million from PBF Energy. The PBF deal is expected to be accretive to the company’s bottom line.

Air Products, in Apr 2022, also purchased Air Liquide's industrial gases business in the United Arab Emirates ("UAE"), including liquid bulk, packaged gases and specialty gases. APD also acquired Air Liquide's majority share in MECD, which owns and operates a liquid CO2 manufacturing site in Bahrain. By purchasing these businesses, Air Products broadened its footprint and regional presence in the UAE and Bahrain.

The company is also boosting productivity to improve its cost structure. It is seeing the positive impacts of its productivity actions. Benefits from additional productivity and cost improvement programs are likely to support its margins moving ahead. Air Products also has been benefiting from higher pricing. Higher merchant demand is also driving its volumes.

Air Products also remains committed to maximize returns to shareholders leveraging strong balance sheet and cash flows. The company, earlier this year, increased its quarterly dividend by 8% to $1.62 per share from $1.50 per share. This marked the 40th straight year of dividend increase. The company expects to pay more than $1.4 billion of dividend to shareholders in calendar 2022.

A Few Headwinds

Air Products is exposed to challenges from cost inflation. It is witnessing higher power costs in its merchant business. The company is seeing significantly higher energy costs, especially in EMEA due to the considerably high natural gas and electricity costs. It is expected to continue to face headwinds from the power cost inflation moving ahead. As such, higher power costs are likely to weigh on margins over the near term.

The company also faces headwinds from unfavorable currency translation. It witnessed significant currency headwinds in the last reported quarter, especially in Europe. Currency translation, stemming from a stronger U.S. dollar, reduced its sales by around 6% and EBITDA by 5% in the quarter and lowered its earnings by 15 cents per share.

In Europe, all major currencies were weaker vis-à-vis the U.S. dollar by double-digits in the quarter. The company sees continued currency headwinds moving ahead.

Air Products and Chemicals, Inc. Price and Consensus

 

Air Products and Chemicals, Inc. price-consensus-chart | Air Products and Chemicals, Inc. Quote

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include Steel Dynamics, Inc. (STLD Quick QuoteSTLD - Free Report) , Olympic Steel, Inc. (ZEUS Quick QuoteZEUS - Free Report) and Commercial Metals Company (CMC Quick QuoteCMC - Free Report) .

Steel Dynamics has a projected earnings growth rate of 36.1% for the current year. The Zacks Consensus Estimate for STLD’s current-year earnings has been revised 7.3% upward in the past 60 days.

Steel Dynamics has a trailing four-quarter earnings surprise of roughly 6.2%. STLD has rallied roughly 77% in a year. The company currently carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Olympic Steel currently carries a Zacks Rank #1. The consensus estimate for ZEUS's current-year earnings has been revised 4.8% upward in the past 60 days.

Olympic Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. ZEUS has rallied around 66% in a year.

Commercial Metals currently carries a Zacks Rank #1. The Zacks Consensus Estimate for CMC's current-year earnings has been revised 13.8% upward in the past 60 days.

Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 19.7%, on average. CMC has gained around 54% in a year.