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Stacie Stuart November 22, 2011 APD

Stacie Stuart November 22, 2011 APD. Criteria. About Air Products. Sector – Basic Materials Industry – Chemicals Established in 1940 Largest supplier of hydrogen and helium Serve range of industries – food and beverage, health and personal care, energy, transportation, semiconductors

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Stacie Stuart November 22, 2011 APD

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  1. Stacie Stuart November 22, 2011 APD

  2. Criteria

  3. About Air Products • Sector – Basic Materials • Industry – Chemicals • Established in 1940 • Largest supplier of hydrogen and helium • Serve range of industries – food and beverage, health and personal care, energy, transportation, semiconductors • Supply atmospheric gases, process and specialty gases, performance materials, equipment and services • Global – US, Canada, South America, Europe, and Asia • Headquarters – Allentown, PA

  4. Strengths • Large customer base • Range of industries • Diversified geographic presence • Strong R&D capability • Currently cutting costs and improving operating margins

  5. 2015 Performance TargetsJune 9, 2011 • Sales growth of 11-13% • Will increase revenue to $15 billion ($9 billion in 2010) • Operating margin of 20% • Return on capital employed to 15% • ”..by executing on its innovation, improvement and integration actions, the company should continue to lower its costs, improve returns and gain a greater competitive advantage over its peers.”

  6. Weaknesses • Anti-competitive allegation against the company’s subsidiary • Inability to meet goals • Operating improvements may be prevented by poor execution

  7. Opportunities • Expanding in Asian countries • Air separation units and supply gases • PetroChina • Enhance US customer base • Liquid helium production plant with MATHESON • Pipeline connecting LA and TX hydrogen pipelines • Formation of Hydrochlor with Linde Gas N. America • Energy savings • Solar farm in Allentown • Energy from waste in England

  8. Threats • Intense competition • APD consistently underperforms competitors • Fluctuating energy prices • Availability of raw materials for contractual commitments

  9. Recommendations • Buy: 12 Hold: 1 • Consider Buying: $64.40 • Consider Selling: $124.20 • Look into competitors (PX, ARG) • Buy 40 • 2% of portfolio • 15.7% of sector • Materials 12.7% • 40 @ 79.34 = $3173.60

  10. Criteria

  11. Praxair • Largest industrial gas supplier in North and South America • Provides atmospheric, process and specialty gases, and related services, systems, equipment, and technologies • Only U.S. chemical company chosen for DOW • Serves 24 industries • Established in 1907 • Sector – Industrials • Industry – Diversified Industrials

  12. Strengths • Strong financials and revenue growth • Presence in emerging markets • Increased quarterly operating margins (21.8%) • Continues to outperform peers • Good customer service • Provides LT contracts (15-20 years) • 20% invested in countercyclical industries • Health, food and beverage • Investing research in alternative energy • Small exposure to cyclical technology sector due to having diverse products and services

  13. Weaknesses • Slow growth in North America • Decline in Europe • Reduction in profitability due to EU • Operating margin pressure in Asia due to overstaffing

  14. Opportunities • Growth in India and China

  15. Threats • Success is strongly related to economic stability • Competition in foreign markets

  16. Considerations • Buy: 7 Hold: 10 • Consider Buying: $66.50 • Consider Selling: $128.30

  17. Criteria

  18. Airgas • Largest U.S. distributor of industrial, medical, specialty gases, hardgoods, nitrous oxide, dry ice, and process chemicals • Through subsidiaries • Leading U.S. distributor of safety products • Largest U.S producer of liquid carbon dioxide in Southeast • Founded in 1982 • Had almost 360 acquisitions • Spent near $1.8 billion in last 5 years

  19. Strengths • Niche: Packaged Gas industry • Revenue increase by 12% from last year • Multiple types of sales force and distribution channels • Good relationships with customers and customize to their needs • Can offer training courses and specialized salesforce • Strong footprint in U.S. • Despite overall slowdown in U.S., Airgas performance has been consistent • Market leader • Despite acquisitions, is able to keep debt low

  20. Weaknesses • Geographic barriers with regions • Fragmented U.S. market • No long term contracts • New acquisition of Lindeincreases market in industrial gas supply but it is reliant on its competitors • Acquisition risk • Selection, integration, and overpayment

  21. Opportunities • Invested in SAP software • Full implementation occurring in Dec 2012 • Spread into Foreign Markets

  22. Threats • Exposed to market conditions • Reliance on competitors

  23. Considerations • Buy: 11 Hold: 2 • Consider Buying: $33.60 • Consider Selling: $64.80

  24. Recommendations • Buy APD • ARG is EXTREMELY overvalued • Not a global company, affected by U.S. market • PX is also overvalued • No growth opportunities in the Americas or Europe • Competitors are going to India and China too

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