APD: An Industrial Gas Giant Offering Compelling Value

Image Source: Pixabay Air Products & Chemicals Inc. (APD) fell more than 6% last week after announcing advanced talks with Yara International, a Norway-based fertilizer producer and global ammonia distributor, on two major projects in the US and Saudi Arabia. But our target price now stands at $360.Air Products intends to sell the ammonia production and distribution assets from its Louisiana project. The total cost of this project is estimated between $8 billion and $9 billion, with final investment decisions for Louisiana targeted by mid-2026, and completion targeted by 2030. Air Products & Chemicals Inc. (APD) Management said approximately 75% of the development capital is related to the industrial gas complex (and 25% represents the portion to be sold to Yara). In Saudi Arabia, Yara is also negotiating marketing rights for renewable ammonia from the NEOM Green Hydrogen Project, with agreements targeted for 2026 and first supply in 2027.CEO Eduardo Menezes reiterated that the project announcements are expected to have no impact on the adjusted earnings per share and capital guidance for 2026 that was provided on the company’s Q4 earnings call. Back then, management called for full-year EPS of $12.85 to $13.15 in 2026, representing 7% to 9% growth even with continued helium challenges.Following the $4 billion spending plans on maintenance and growth projects in 2026, management has called for capex to fall toward $2.5 billion annually as major projects are completed. Last week’s decline brings APD’s NTM P/E to 18.7, and it drops to 15.5 based on consensus 2028 EPS, which is below the multiples of its two largest peers.Although the industrial gas business is capital intensive, its growth runway remains significant. We think our thesis holds that these gases are essential inputs, yet they represent a small share of customer costs. This dynamic supports the premium multiple APD has historically commanded.The company raised its dividend in January for the 43rd consecutive year, and the yield is now 2.9%.More By This Author:SPX: Why 2026 Could Be Much Better Than Investors Think AI Spending: No, This Is Not The Dot-Com Bubble All Over AgainCBTJ: A "Protected" Bitcoin ETF That Helps Limit Downside Risk