Air Products and Chemicals: Strategic De-Risking and Clean Hydrogen Leadership Justify a Re-Rating

The global energy transition is accelerating, and companies that can align their capital allocation with decarbonization megatrends are poised to outperform. Air Products and Chemicals, a long-standing industrial gas leader, is emerging as a pivotal player in the clean hydrogen sector-a market projected to grow into a $300 billion industry by 2035. While its fiscal 2025 GAAP results were marred by pre-tax charges of $3.7 billion, the company's non-GAAP adjusted EPS of $12.03 and its strategic pivot toward clean hydrogen underscore a disciplined approach to de-risking and long-term value creation. By leveraging partnerships, optimizing capital deployment, and exiting non-core projects, Air Products is repositioning itself as a leader in the hydrogen economy, warranting a re-rating of its valuation.

Strategic Capital Reallocation: From Cost-Cutting to High-Return Projects

Air Products' fiscal 2025 results highlight the tension between short-term accounting challenges and long-term strategic clarity. GAAP losses were driven by asset write-downs and restructuring costs, but non-GAAP metrics tell a different story: adjusted operating income of $2.9 billion and a 2026 guidance range of $12.85–$13.15 per share. This divergence reflects the company's ability to separate operational performance from one-time charges, a critical trait in capital-intensive industries.

The company's capital allocation strategy for 2026-$4 billion in planned expenditures-prioritizes high-return industrial gas projects and clean hydrogen infrastructure according to the company's latest report.

Notably, Air Products has exited three U.S. projects (a green hydrogen facility in New York, a SAF expansion in California, and a carbon monoxide project in Texas) due to regulatory shifts and unfavorable economics. These divestitures, while painful, demonstrate a commitment to focusing resources on projects with clearer pathways to profitability. By shedding low-margin ventures, Air Products is channeling capital into initiatives that align with its core competencies and decarbonization goals.

Partnerships as a De-Risking Mechanism: The Yara Model

The most compelling example of Air Products' strategic reallocation is its collaboration with Yara International on the Louisiana Clean Energy Complex and the NEOM Green Hydrogen Project in Saudi Arabia. These partnerships exemplify a novel financing model for large-scale decarbonization projects, where each partner leverages its strengths to minimize risk.

In Louisiana, Air Products is developing a low-carbon hydrogen facility capable of generating 750 million standard cubic feet of hydrogen daily while capturing 95% of CO₂ emissions. Yara is investing $2–2.25 billion (25% of the total $8–9 billion project cost) to acquire ammonia production, storage, and shipping facilities. Air Products, in turn, will supply 80% of the hydrogen under a 25-year offtake agreement, ensuring stable demand for its output. This structure allows Air Products to retain control over hydrogen production-a core competency-while Yara handles downstream distribution, where it has an established network of 12 ammonia vessels and 18 import terminals according to the latest announcement.

The NEOM project, 90% complete and slated for 2027 commercial production, further illustrates this model. Air Products is the sole offtaker of 1.2 million tonnes of renewable ammonia annually, while Yara will commercialize unsold ammonia in Europe under a commission-based agreement. By splitting responsibilities, the partnership reduces capital intensity for both firms and accelerates project timelines-a critical advantage in a sector where execution risk is high.

Renewable Energy Investments: Fueling the Hydrogen Economy

Air Products' clean hydrogen ambitions are underpinned by its investments in renewable energy infrastructure. The company is deploying 257 wind turbines (1.6 GW capacity) and a 2.2 GW solar farm, with plans for a dedicated transmission grid to carry 4 GW of clean energy according to the company's investor materials. These assets not only decarbonize hydrogen production but also insulate Air Products from volatile energy prices-a key de-risking factor.

The integration of renewables into hydrogen production is a strategic differentiator. Unlike traditional hydrogen, which relies on fossil fuels and carbon capture, Air Products' approach leverages green energy to produce hydrogen at scale. This aligns with global regulatory trends, such as the EU's Carbon Border Adjustment Mechanism and the U.S. 45V tax credit, which favor low-carbon production. By securing long-term offtake agreements and renewable energy contracts, Air Products is locking in cost advantages that will compound over time.

A Roadmap for Shareholder Value

The cumulative effect of these strategies is a business model that balances near-term profitability with long-term growth. Air Products' 2026 guidance-$12.85–$13.15 in adjusted EPS-suggests confidence in its capital allocation discipline. Meanwhile, its clean hydrogen projects are positioned to capture a significant share of the $300 billion market by 2035, driven by demand from sectors like shipping (e.g., the nitrogen membrane system deployed on NYK Line vessels according to company sustainability reports) and industrial ammonia production.

Critically, the company's partnerships with Yara and its renewable energy investments create a flywheel effect: lower production costs, stable demand, and scalable infrastructure. This flywheel is essential for hydrogen, a sector where cost parity with traditional fuels remains a hurdle. By reducing risk through collaboration and optimizing capital deployment, Air Products is building a moat around its hydrogen business-one that competitors will struggle to replicate.

Conclusion: A Re-Rating Justified

Air Products' strategic de-risking and clean hydrogen leadership are not just about survival in a transitioning energy landscape-they are about capturing a dominant position in a $300 billion market. The company's disciplined capital allocation, innovative partnerships, and renewable energy investments position it as a bellwether for the hydrogen economy. While GAAP results may remain volatile due to one-time charges, the underlying business is strengthening. For investors, this divergence between accounting noise and strategic clarity presents a compelling case for a re-rating of Air Products' valuation.