Airgas Upgraded to Hold - Analyst Blog

On Apr 1, 2014, Zacks Investment Research upgraded Airgas, Inc. ARG, the supplier of industrial, medical and specialty gases and hardgoods, to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell).

Why the Upgrade?

On Jan 30, Airgas reported adjusted earnings of $1.18 a share in the third-quarter fiscal 2014 (ended Dec 31, 2013), up 13% year over year, driven by the realization of SAP-related benefits. The results were in line with the Zacks Consensus Estimate. Revenues also rose 3% year over year to $1.24 billion.

Airgas expects earnings per share EPS in the range of $1.18-$1.23 for the fourth quarter of fiscal 2014 which reflects an increase of 4-9% over prior year earnings. The company also forecasts EPS in the range of $4.69-$4.74 full year of fiscal 2014, representing an 8-9% year-over-year rise.

Airgas is expected to benefit from its strong acquisition pipeline. The company has a target of acquisitions worth total sales of $150 million in fiscal 2014. Recently, the company acquired Welding & Therapy Service, Inc. with five locations in Indiana and Kentucky. Notably, the deal will help to better the service and product offerings of both the companies. The deal was Airgas' 11th acquisition in the fiscal year ended Mar 31, 2014 with annual revenues of nearly $82 million.

Airgas remains optimistic about the long-term prospects for the U.S. manufacturing industries, driven by abundant supply of low-cost energy and higher shipping costs from overseas. As per the company, U.S. manufacturing will also benefit from future growth in the non-residential construction and energy industries.

Based on this, in Mar 2014, the company declared the reorganization of its North Central distribution region into two separate regions. It's North Division has spilt into a redefined North Central region, headquartered in Appleton, WI, and a new Midwest region, headquartered in the Chicago metropolitan area. This will help Airgas to improve its competitive position and long-term growth prospects.

Additionally, in order to expand its European presence, Airgas opened a retail location in Gelsenkirchen, Germany, the first Red-D-Arc location in the country. The facility will offer Red-D-Arc's full line of welding positioners, manipulators, turning rolls and other weld automation products for sale and lease, as well as a range of Red-D-Arc welding products and equipments for both long-term and short-term rentals.

Other Stocks to Consider

Some other stocks in the same sector that warrant a look includes Akzo Nobel NV (AKZOY), Cytec Industries Inc. CYT and The Dow Chemical Company DOW. All these stocks hold a Zacks Rank #2 (Buy).