Leadership Changes And Investments Will Impact Future Earnings Amid Market Hurdles

Key Takeaways

• Appointment of new leadership with international expertise likely to drive strategic growth, improve efficiencies, and positively impact future earnings.
  
• Strategic investments and partnerships, including large-scale projects and pricing actions, indicate potential for revenue growth, margin expansion, and shareholder returns.
  
• Divestments, geopolitical tensions, and currency fluctuations threaten revenue, margin stability, and earnings growth in key markets, particularly in Asia.

Catalysts

Provides atmospheric gases, process and specialty gases, equipment, and related services in the Americas, Asia, Europe, the Middle East, India, and internationally.

• Appointment of Eduardo Menezes as CEO, with his extensive international experience in industrial gases, is likely to drive strategic growth initiatives and improve operational efficiencies, positively impacting future earnings.
  
• New directors and leadership changes, including a new Chairman and Vice Chairman with industry expertise, suggest a refreshed strategic direction and governance that could enhance decision-making, potentially improving net margins.
  
• Investment in large-scale projects like the Uzbekistan facility and blue hydrogen project in Louisiana, along with focus on productivity initiatives, indicate significant future revenue growth and operational margin expansion.
  
• Strategic focus on pricing actions, especially in response to rising energy costs in Europe, suggests a potential for improved revenue streams and protection of net margins amidst cost pressures.
  
• Continued emphasis on strategic partnerships and equity collaborations for projects, such as the blue hydrogen project, has the potential to optimize capital expenditures and enhance shareholder returns, supporting earnings growth.

Air Products and Chemicals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Air Products and Chemicals's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 32.0% today to 25.1% in 3 years time.
• Analysts expect earnings to reach $3.7 billion (and earnings per share of $16.74) by about April 2028, down from $3.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $3.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, up from 14.4x today. This future PE is greater than the current PE for the US Chemicals industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

Air Products and Chemicals Future Earnings Per Share Growth

Risks

• The divestment of the LNG process technology and equipment business, which previously contributed to earnings, could lead to a reduction in revenue and affect future earnings growth.
  
• The Asian market, particularly China, remains challenging with no material improvement expected, potentially impacting revenue growth and margin stability in that region.
  
• Tariffs and geopolitical tensions, especially in the context of China and other major markets, may affect revenues negatively and lead to increased operational costs.
  
• Volumes have been impacted by divestments and operational challenges, such as the planned maintenance in Uzbekistan, which could temporarily depress revenue and earnings growth.
  
• A strengthening U.S. dollar could adversely affect international revenue and margins, impacting overall profitability.

Valuation

• The analysts have a consensus price target of $345.565 for Air Products and Chemicals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $376.0, and the most bearish reporting a price target of just $285.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.9 billion, earnings will come to $3.7 billion, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 7.2%.
• Given the current share price of $248.61, the analyst price target of $345.57 is 28.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.