Wall Street is trying to catch up with Air Products and Chemicals Inc. (APD, Financial), sending its shares higher on a day the broader market sold off.
The industrial chemicals giant reported adjusted first-quarter earnings per share of $2.08, missing the average analyst estimate of $2.13. But revenue of $2.5 billion rose 12.9% year over year, beating expectations of $2.35 billion.
For fiscal 2021, Air Products expects full-year adjusted earnings of $8.95 to $9.10 per share, up 7% to 9% over prior-year adjusted earnings. For the third quarter, it is projecting adjusted earnings of $2.30 to $2.40, up 14% to 19% over the year-ago period.
Investors embraced the outlook, sending shares up 1.5% on Monday.
Air Products and Chemicals is an excellent long-term buy for several reasons.
First, the company's results have been negatively affected by the Covid-19 crisis, which reduced demand from industrial customers like oil refiners.
Then there's the nature of the company's products, which are used by hospitals, semiconductor manufacturers and refineries, with little competition.
That makes them price inelastic, allowing Air Products to raise prices while growing revenue and profits in the long run.
Over the last three years, the company's revenue grew at a rate of 2.3%, while Ebitda increased by 11% and operating margins stayed at 15.2%.
Between 2010 and 2020, Air Products has delivered an annual total return of 17.50%.
| Company | APC | LIN |
| Three-year Revenue Growth (%) | 2.3 | 9.3 |
| Three-year EBITDA Growth (%) | 15.2 | 7.0 |
| Current Operating Margin (%) | 24.3 | 14.2 |
| Dividend (%) | 2.07 | 1.35 |
| Average Annual Total Return 2010-2020 (%) | 17.50 | 51.08 |
Meanwhile, Air Products has a positive economic profit, which means it is creating value as it grows.
| Company | ROIC | WACC | ROIC-WACC (Economic profit) | ||
| Air Products | 10.53% | 5.63% | 5.43% | ||
| Linde | 3.43% | 4.81% | -1.38% |
There's an additional reason to stay with Air Products: it is a significant player in the hydrogen market, which is expected to fare well under the Biden administration's alternative energy agenda.
Air Products is the world's largest producer of outsourced hydrogen to oil refineries with an extensive pipeline supply network and world-class customer service. In addition, in the first quarter, the company inaugurated a state-of-the-art hydrogen fueling station for Ulsan City, South Korea, one of the three pilot cities in the country's hydrogen economy roadmap.
Hydrogen is projected to make up 80% of the company's portfolio by 2035.
Meanwhile, investors can count on the company's dividend, which currently yields 2.07%.
Disclosure: I own shares of Air Products and Linde.
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