Air Products & Chemicals Inc Valuation – March 2018 $APD

Company Profile (obtained from Marketwatch): Air Products & Chemicals, Inc. engages in the manufacture and distribution of atmospheric gases. It operates through the following segments: Industrial Gases-Americas; Industrial Gases-EMEA (Europe, Middle East, and Africa); Industrial Gases-Asia; Industrial Gases-Global; Materials Technologies; and Corporate and Other. The Industrial Gases segment, which covers Americas, EMEA, Asia, and Global markets, produces atmospheric gases such as oxygen, nitrogen, argon, and rare gases; process gases such as hydrogen, helium, carbon dioxide, carbon monoxide, syngas, and specialty gases; and equipment for the production and processing of gases such as air separation units and non-cryogenic generators. The Materials Technologies segment comprises of performance, and electronic materials. The Corporate and Other segment includes liquefied natural gas, and helium container businesses. The company was founded by Leonard Parker Pool on September 30, 1940 and is headquartered in Allentown, PA.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of APD – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $36,559,974,167 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.92 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 76.97% Pass
6. Moderate PEmg Ratio PEmg < 20 21.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.60 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.92 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.97 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $7.66
MG Growth Estimate 8.26%
MG Value $191.64
Opinion Fairly Valued
MG Grade B+
MG Value based on 3% Growth $111.06
MG Value based on 0% Growth $65.10
Market Implied Growth Rate 6.66%
Current Price $167.08
% of Intrinsic Value 87.18%

Air Products & Chemicals, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.94 in 2014 to an estimated $7.66 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.66% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Air Products & Chemicals, Inc. revealed the company was trading above its Graham Number of $85.6. The company pays a dividend of $3.71 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.81, which was below the industry average of 31.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.97.

Air Products & Chemicals, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.97
Graham Number $85.60
PEmg 21.81
Current Ratio 2.92
PB Ratio 3.60
Current Dividend $3.71
Dividend Yield 2.22%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $5,355,500,000
Total Current Liabilities $1,831,600,000
Long-Term Debt $3,414,900,000
Total Assets $18,208,800,000
Intangible Assets $1,219,900,000
Total Liabilities $7,993,500,000
Shares Outstanding (Diluted Average) 220,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.05
Sep2017 $13.65
Sep2016 $2.89
Sep2015 $5.88
Sep2014 $4.61
Sep2013 $4.68
Sep2012 $5.44
Sep2011 $5.63
Sep2010 $4.74
Sep2009 $2.96
Sep2008 $4.15
Sep2007 $4.64
Sep2006 $3.18
Sep2005 $0.03
Sep2004 $0.03
Sep2003 $1.78
Sep2002 $2.36
Sep2001 $2.12
Sep2000 $0.57
Sep1999 $2.09
Sep1998 $2.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.66
Sep2017 $7.42
Sep2016 $4.44
Sep2015 $5.23
Sep2014 $4.94
Sep2013 $4.97
Sep2012 $4.93
Sep2011 $4.60
Sep2010 $4.03
Sep2009 $3.45
Sep2008 $3.26
Sep2007 $2.52
Sep2006 $1.47
Sep2005 $0.83
Sep2004 $1.28
Sep2003 $1.86
Sep2002 $1.91

Recommended Reading:

Other ModernGraham posts about the company

Air Products & Chemicals Inc Valuation – February 2016 $APD
5 Speculative and Overvalued Companies to Avoid – December 2014
27 Companies in the Spotlight This Week – 12/20/14
Air Products & Chemicals Inc. Annual Valuation – 2014 $APD

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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