Is Air Products and Chemicals, Inc. (NYSE:APD) Stock Undervalued?

Air Products and Chemicals, Inc. (NYSE:APD) has been a standout performer in the chemical manufacturing industry, but recent stock price volatility has left investors wondering if the market is missing something. With a 52-week high of $341.14 and a recent price of $283.20, the stock has shown significant fluctuations. However, a closer look at the company's financial performance and strategic initiatives suggests that the market might be undervaluing APD.



Strong Financial Performance

Air Products and Chemicals, Inc. has demonstrated robust financial health in recent years. For fiscal year 2024, the company reported a GAAP EPS of $17.24, a 67% increase from the prior year. This substantial growth in EPS is a clear indicator of the company's operational efficiency and financial strength. Additionally, APD's GAAP net income for fiscal year 2024 was $3.9 billion, up 65% from the previous year. This increase in net income is primarily due to a $1.2 billion after-tax gain recognized upon the sale of the company's former LNG business at the end of the fourth quarter.

Comparing these metrics to industry averages, APD's performance stands out. The company's GAAP net income margin of 31.9% for fiscal year 2024 is significantly higher than the industry average, which is typically around 10-15%. This high net income margin suggests that APD is effectively managing its costs and generating substantial profits from its operations.

Furthermore, APD's adjusted EBITDA margin for fiscal year 2024 was 41.7%, up 440 basis points from the prior year. This margin is also higher than the industry average, indicating that APD is more efficient in generating earnings before interest, taxes, depreciation, and amortization compared to its peers.

Market Valuation and Intrinsic Value

Despite its strong financial performance, APD's stock price has shown volatility, with a 52-week high of $341.14 and a recent price of $283.20. However, the company's intrinsic value, as estimated by valuation models, is $427.81, which is significantly higher than its current trading price. This discrepancy indicates that there may be an opportunity for investors to buy APD's stock at a discount.



Strategic Initiatives and Long-Term Growth

Air Products and Chemicals, Inc. has been proactive in its strategic initiatives, particularly in the areas of clean hydrogen and energy transition. The company signed a 15-year agreement to supply 70,000 tons of green hydrogen annually starting in 2030, helping to decarbonize TotalEnergies' Northern European refineries and avoid approximately 700,000 tons of CO₂ each year. Additionally, APD announced plans to build networks of permanent, commercial-scale, multi-modal hydrogen refueling stations in California, Canada, and Europe. These initiatives align with the growing demand for sustainable energy solutions and position Air Products as a leader in the energy transition.

The company's focus on sustainability is another key driver of its long-term growth prospects. Air Products has set additional sustainability goals, including committing to quadruple renewable energy used to make the company's products by 2030 compared to a 2023 baseline. This focus on sustainability can enhance the company's long-term growth prospects by attracting environmentally conscious investors and customers.

Conclusion

In conclusion, Air Products and Chemicals, Inc.'s recent financial performance metrics, such as EPS and net income, are strong and compare favorably to industry averages and historical data. These metrics suggest that the company is in good financial health and may be undervalued in the market. Additionally, the company's strategic initiatives in clean hydrogen and energy transition, as well as its commitment to sustainability, position it well for future success. While short-term volatility in APD's stock price can be attributed to market conditions and near-term earnings performance, the company's long-term growth prospects are supported by its strong financial performance and strategic initiatives. Investors may want to consider adding APD to their portfolios, given its strong financial prospects and potential for undervaluation.