On Tuesday, Seaport Global Securities adjusted its stance on Air Products (NYSE:APD) & Chemicals Inc. (NYSE:APD), downgrading the company's stock from Buy to Neutral. The firm cited ongoing challenges faced by the company, including execution missteps, project delays, customer uncertainty, and diminished transparency. These issues, along with a lack of immediate catalysts for growth, prompted the reassessment of the stock's outlook.
The analyst from Seaport Global expressed previous support for Air Products, acknowledging the undervaluation of its base business and underappreciation of its future megaprojects. However, recent disappointments for investors, including a sell-off following unimpressive quarterly results and guidance suggesting a need for a significant second-half performance improvement, have led to a change in perspective.
Air Products reported several factors contributing to its first-quarter shortfall, such as helium market weakness, increased costs in equipment sales, and the impact of foreign exchange devaluation in Argentina. Despite these challenges, the company anticipates these headwinds to ease throughout the year, with expectations for a seasonal uptick and contributions from new projects to bolster the second half of the year's performance.
The company is involved in key megaprojects that are expected to drive future earnings per share growth. These include initiatives in Alberta for blue hydrogen, Neom for green ammonia, Louisiana for blue ammonia, and sustainable aviation fuel production with World Energy. Nevertheless, there are still uncertainties regarding the returns and timing of these projects.
Seaport Global highlighted that long-term, value-oriented investors might remain interested in Air Products, as the stock is currently trading at 11.2 times the firm's forward twelve-month EBITDA estimate. This valuation is below the five-year average of approximately 15 times and significantly less than competitor Linde (NYSE:LIN) plc's 16.3 times. The firm concluded by stating it would look for clear signs of improved execution and a fully de-risked profile from Air Products, which may take several quarters to materialize.
InvestingPro Insights
InvestingPro data highlights a mixed financial landscape for Air Products & Chemicals Inc. (NYSE:APD), with a Market Cap of approximately $47.81 billion USD and a P/E Ratio of 24.68. Notably, the company's stock is trading near its 52-week low, with a Price % of 52 Week High at 70.85%. This could be an indicator of the market’s current valuation of the company's growth prospects and recent performance issues as noted by Seaport Global Securities.
Despite recent market performance challenges, Air Products has a robust history of dividend reliability, having maintained dividend payments for 54 consecutive years and even raising its dividend for 41 consecutive years. This is underscored by a Dividend Yield of 3.25%, which may appeal to long-term, value-oriented investors seeking stable income streams.
One of the InvestingPro Tips suggests that the stock's current RSI indicates it is in oversold territory, which could signal a potential buying opportunity for contrarian investors. Moreover, analysts predict that the company will be profitable this year, reinforcing the potential for recovery and growth. For investors looking for deeper insights, there are 9 additional InvestingPro Tips available for APD, which can be explored in detail with a subscription. Use coupon code SFY24 for an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 for an additional 10% off a 1-year InvestingPro+ subscription.
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