BofA Securities analyst Steve Byrne upgraded Air Products & Chemicals Inc APD to Buy (from Neutral) with a price target of $264.
The upgrade reflects unwarranted valuation disconnect, lower risk in speculative project backlog, and a strong base business.
While the long-term outlook for NEOM is unknown, this project represents only $0.8 billion of Air Products’ backlog of $20 billion on non-recourse financing, says the analyst.
Earier this month, Air Products reported first-quarter 2024 adjusted EPS of $2.82, up 7% year-over-year, missing the consensus of $3.00, and sales declined 5.6% YoY to $2.997 billion, missing the consensus of $3.19 billion.
The analyst writes that the company missed first-quarter earnings due to challenges in its helium business (<10% of sales) on less demand and Russian exports but projects some recovery with fab operating rates.
As per the recent investor meetings, the analyst highlighted that investors are concerned about the returns on some of Air Products’ more “speculative” projects, mainly the green ammonia project in NEOM and the $7 billion Louisiana blue hydrogen/ammonia complex, with both still lacking customer commitments.
The analyst estimates EPS of $12.55 (vs. consensus: $12.33) in FY24, $13.47 (vs. street view of $13.35) in FY25, and $14.41 (vs. $14.74 estimate) in FY26.
Price Action: APD shares are up 4.4% at $226.54 on the last check Thursday.
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