On Thursday, BMO (TSX:BMO) Capital Markets adjusted its financial outlook for Air Products (NYSE:APD) & Chemicals Inc. (NYSE: APD) shares, increasing the price target from $294.00 to $300.00. The firm has maintained an Outperform rating on the company's stock. This adjustment follows Air Products' announcement that it will sell its liquefied natural gas (LNG) equipment business to Honeywell (NASDAQ:HON) for $1.8 billion.
The sale of the LNG unit is viewed as a strategic move for Air Products, as the business, despite its leading market share, has been undervalued by investors for various reasons.
BMO Capital Markets believes that the transaction, which is estimated to be valued at approximately 13 times the expected 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA), will have a positive impact on the company's cash flow and balance sheet.
The deal's valuation is considered to be in line with Air Products' own multiple on its 2024 earnings and is lower than its 11.8 times multiple on forecasted 2025 earnings. The sale is expected to not only enhance Air Products' financial health but also to stabilize the company's earnings over time.
Air Products' decision to divest its LNG equipment business is part of a broader trend in the industry where companies are streamlining their operations to focus on core areas. The proceeds from the sale could potentially be used for other strategic initiatives, including investments in growth areas or returning value to shareholders.
In other recent news, industrial conglomerate Honeywell has made a significant move by acquiring the liquefied natural-gas (LNG) process technology and equipment business from Air Products for $1.81 billion in cash.
This acquisition, which marks Honeywell's fourth this year, aligns with CEO Vimal Kapur's strategic direction focusing on automation, the future of aviation, and the transition to sustainable energy sources.
The integration of Air Products' LNG technologies into Honeywell's portfolio is expected to positively impact the company's adjusted earnings per share in the first full year following the acquisition.
Simultaneously, Air Products & Chemicals has secured a significant 15-year contract to supply green hydrogen to TotalEnergies (EPA:TTEF) in Europe. This major development in its clean hydrogen initiatives is expected to yield a return of over 10% according to TD (TSX:TD) Cowen, which reiterated a Buy rating on the company.
Furthermore, Air Products has announced plans to invest over $70 million to expand its manufacturing and logistics center in Missouri, aiming to meet increasing demand across various industries by 2025.
In analyst notes, BMO Capital Markets raised its price target for Air Products to $276, maintaining an Outperform rating, citing the company's strategic approach to the clean hydrogen market.
TD Cowen also lifted its target to $320, while Mizuho Securities trimmed its target to $286, both firms retaining a Buy rating. These recent developments highlight the companies' steady progress in their strategic initiatives and market positioning.
InvestingPro Insights
As Air Products & Chemicals Inc. (NYSE: APD) navigates through its strategic business moves, the latest financial metrics from InvestingPro provide a deeper look into the company's current valuation and performance. With a market capitalization of $56.83 billion and a price-to-earnings (P/E) ratio of 22.99, Air Products is trading at a valuation that reflects its stability in the market. This is further underscored by the company's low price volatility, a characteristic that might appeal to investors looking for steady performers. Additionally, the company's commitment to shareholder returns is evident, having raised its dividend for an impressive 41 consecutive years, which showcases a reliable income stream for investors.
An InvestingPro Tip worth noting is that while the company is trading at a high P/E ratio relative to near-term earnings growth, analysts predict that Air Products will remain profitable this year. This aligns with the company's performance over the last twelve months, further solidifying its financial health. For those interested in exploring more insights and tips, InvestingPro offers additional analysis on Air Products, which can be accessed with a special offer. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and learn about the 5 additional InvestingPro Tips available for APD.
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