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Here's Why Air Products Should Be in Your Portfolio Now

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Air Products’ (APD - Free Report) stock looks promising at the moment. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

Air Products, a Zacks Rank #2 (Buy) stock, has outperformed the industry it belongs to over the last six months. The company’s shares have moved up around 3.9% over this period, compared with roughly 2% gain recorded by the industry.


Let’s delve deeper into the factors that make this industrial gas giant an attractive investment option.

What Working in Favor of APD?

Strong Q3 and Upbeat Outlook: Air Products’ adjusted earnings for third-quarter fiscal 2017 (ended Jun 30, 2017) of $1.65 per share rose 15% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $1.60. Revenues rose 11% year over year to $2.12 billion in the quarter, beating the Zacks Consensus Estimate of $2.05 billion.

Air Products has increased its adjusted earnings per share guidance for the full year. For fiscal 2017, Air Products now expects adjusted earnings per share of $6.20–$6.25 (up from $6.00-$6.25 expected earlier), which at midpoint, represents a 10% increase over last year. For the fourth-quarter fiscal 2017, Air Products anticipates adjusted earnings per share from continuing operations of $1.65–$1.70 per share, which at midpoint, also represents a 12% increase over last year.

Estimates Northbound: Annual estimates for Air Products have moved north over the past two months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for fiscal 2017 has increased by around 1.5% to $6.24 per share. The Zacks Consensus Estimate for fiscal 2018 has also moved up 1.3% over the same timeframe to $6.79.

Positive Earnings Surprise History: Air Products has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 1.77%.

Strong Balance Sheet: Air Products ended the fiscal third quarter with cash and cash equivalents of $2,332.6 million, a whopping 353.1% year over year surge. Total long-term debt fell around 14.2% year over year to $3,366.6 million. The company remains committed to invest in its core industrial gases business leveraging its strong balance sheet to create significant value for its shareholders.

Growth Drivers: Air Products has a long-term (3-5 years) expected earnings per share (EPS) growth rate of roughly 12.1%, higher than the industry average of 9.6%. Air Products is well placed to leverage the cyclical recovery in core industrial end-markets. Acquisitions and new business wins are also expected to continue to drive results. Moreover, the company has built a strong project backlog. These projects are expected to be accretive to earnings and cash flow over the next few years.

Air Products, in July, inked a long-term gas supply agreement with Huntsman (HUN - Free Report) . Under the deal, Air Products will build, own and operate a new steam methane reformer and cold box in Geismar, LA. Air Products facilities which will supply hydrogen, carbon monoxide and steam to Huntsman's Geismar operations are expected to be onstream in Jan 2020. The new state-of-the-art facility will provide high reliability and sustainability with enhanced energy efficiency and will help to lower emissions.

Air Products also remains on track in delivering on its cost reduction programs, which should support its margins. The company is progressing well with its $600 million cost-cutting program.

Moreover, Air Products has significant amount of cash to invest in its core industrial gases business. The company expects to have roughly $8 billion to deploy in strategic, high-return opportunities (including acquisitions and large industrial gases projects) to create shareholders value over the next three years.

Other Stocks to Consider

Other well-placed stocks in the basic materials space include The Chemours Company (CC - Free Report) and Kronos Worldwide Inc (KRO - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours has expected long-term earnings growth rate of 15.5%.

Kronos Worldwide has expected long-term earnings growth rate of 5%.

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