Air Products & Chemicals Inc. (APD, Financial) has lost more than 11% of its stock value for the year after beating the index in 2019 and 2020. A host of reasons, including an earnings miss, diluted the stock price, but that just means that now is the perfect time to enter a position as a possible surge is on the way, by my estimate.
Saudi Aramco Deal
Air Products has signed a joint-venture agreement with Saudi Aramco and ACWA in relation to a $12 billion asset acquisition deal. The will be purchasing the ASUs, gasification, syngas cleanup, utilities and power assets from Aramco, and once formed, the joint venture will produce hydrogen, steam and other energy sources that will be supplied to Aramco.
Air Products says its stake in the project will exceed 50%, and it will add significantly to the consistency of its top line.
Ex-Dividend
Air Products is going ex-dividend tomorrow as it prepares to pay out $1.50 per share on Nov. 8. That's a dividend yield of 2.31%. A stock typically declines after its ex-dividend date and rebounds straight after. Investors were expecting a larger dividend, and the stock has thus lost interim value to the perceived balance sheet effect. I expect the stock to regain value soon as the balance sheet effect diminishes.
Key Metrics
Air Products has experienced a significant improvement in its earnings yield over the past year while also significantly improving on its weighted average cost of capital. These two combined mean that an increasing amount of residual value is available for shareholders; if the company doesn't pay higher dividends in the future, it will most likely re-invest the capital.
A three-year uptrend in the company's diluted earnings per share is encouraging. The company's net income margin of 19.51% is also better than the sector median and 4.99% above its own five-year average. We could see the Saudi Aramco deal play a big part in sustaining these levels.
Final word
Air Products and Chemicals has shed much value over the year-to-date period as investors overreact to temporary headwinds, but that just makes it an excellent buying opportunity as the company goes ex-dividend tomorrow and the trajectory of its metrics indicates that it will increase its intrinsic value in the short to medium term.
