Air Products & Chemicals Inc Valuation – January 2019 $APD
Company Profile (excerpt from Reuters): Air Products and Chemicals, Inc., incorporated on May 25, 1961, is an industrial gases company. The Company’s Industrial Gases business provides atmospheric and process gases and related equipment to manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. The Company is also a supplier of liquefied natural gas process technology and equipment. The Company operates through five segments: Industrial Gases-Americas, Industrial Gases-Europe, Middle East, and Africa (EMEA), Industrial Gases-Asia, Industrial Gases-Global, and Corporate and other.
Downloadable PDF version of this valuation:
ModernGraham Valuation of APD – January 2019
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 | $34,708,500,605 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.17 | 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 | 80.14% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 19.76 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.13 | 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 | 2.17 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 1.22 | Fail | |
| 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 | $8.00 |
| MG Growth Estimate | 7.96% |
| MG Value | $195.30 |
| Opinion | Fairly Valued |
| MG Grade | A- |
| MG Value based on 3% Growth | $115.98 |
| MG Value based on 0% Growth | $67.99 |
| Market Implied Growth Rate | 5.63% |
| Current Price | $158.09 |
| % of Intrinsic Value | 80.95% |
Air Products & Chemicals, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value 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 $5.23 in 2015 to an estimated $8 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.63% 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 $94.7. The company pays a dividend of $4.25 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.76, which was below the industry average of 20.47, 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 $-13.21.
Air Products & Chemicals, Inc. fares extremely well in the ModernGraham grading system, scoring an A-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$13.21 |
| Graham Number | $94.70 |
| PEmg | 19.76 |
| Current Ratio | 2.17 |
| PB Ratio | 3.13 |
| Current Dividend | $4.25 |
| Dividend Yield | 2.69% |
| Number of Consecutive Years of Dividend Growth | 20 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Total Current Assets | $5,082,200,000 |
| Total Current Liabilities | $2,338,300,000 |
| Long-Term Debt | $3,351,700,000 |
| Total Assets | $19,178,300,000 |
| Intangible Assets | $1,227,400,000 |
| Total Liabilities | $8,002,000,000 |
| Shares Outstanding (Diluted Average) | 221,100,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $8.05 |
| Sep2018 | $6.78 |
| 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 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $8.00 |
| Sep2018 | $7.57 |
| 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 |
Recommended Reading:
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Disclaimer:
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.
