Morningstar | Air Products' Q1 Fiscal-Year 2019 Results Roughly in Line With Our Expectations; FVE Intact
We maintain our $187 fair value estimate for narrow-moat industrial gas distributor Air Products, as the company delivered first-quarter fiscal-year 2019 results that were roughly in line with our expectations. Adjusted EPS grew 4% compared with the same period last year (9% excluding the impact of a prior-year plant sale in China), marking the nineteenth consecutive quarter of year-over-year adjusted EPS growth. Air Products also bumped its quarterly dividend from $1.10 to $1.16, extending its dividend growth streak to 37 consecutive years.Sales were flat year over year due to 3% volume and 2% currency headwinds. Volumes were negatively impacted by a plant closure in China, a modification of a hydrogen contract in India to a tolling agreement, and lower sale of equipment activity in Japan as the project nears completion. Excluding these items, sales were up 9% from the same prior-year period, driven by volume growth and price improvements in all three regions.
The company also announced investments in a liquid hydrogen plant in California, air separation units in Minnesota and India, a nitrogen facility in China, and helium investments in Algeria. Furthermore, the Lu’An gasification project is now fully onstream, and management expects it to contribute over $0.25 to fiscal-year 2019 EPS.
Thus far, management has spent $1.8 billion and committed another $6.3 billion of its roughly $15.8 billion capital deployment plan. If management can continue to invest the remaining capital in value-creating projects, we estimate that new projects could add around $5-$6 to EPS by the end of fiscal-year 2022 (compared with fiscal-year 2018 adjusted EPS of $7.45)
Air Products remains our favorite pick in the industrial gas space. The stock is currently trading at approximately a 15% discount to our fair value estimate, which we view as an attractive entry point for a company with exemplary stewardship and a positive moat trend.
Air Products and Chemicals serves customers globally with a portfolio of products, services, and solutions that include atmospheric gases, process and other gases, equipment, and services. The company is a supplier of hydrogen and is engaged in helium and liquefied natural gas (LNG) process technology and equipment. The company also develops, engineers, builds, owns and operates industrial gas projects, including gasification projects that convert abundant natural resources into syngas for the production of power, fuels and chemicals. The company designs and manufactures equipment for air separation, hydrocarbon recovery and purification, LNG, and liquid helium and liquid hydrogen transport and storage.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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