On Wednesday, Citi adjusted its outlook on Air Products (NYSE:APD) & Chemicals Inc. (NYSE:APD), reducing the stock's price target to $280 from $285, while reaffirming a Buy rating.
The adjustment follows the company's disclosure of higher maintenance costs that have impacted its fiscal third-quarter guidance. Management attributed these costs primarily to turnarounds in Europe and the United States.
Despite the reduced guidance for the upcoming quarter, the company anticipates a stronger fiscal fourth quarter. This optimism is based on the expected contribution from smaller plants scheduled to come online, continuing the momentum of approximately 20 plants that began operations in the first half of the fiscal year. Historically, the fourth quarter has been the most robust period for Air Products & Chemicals.
The firm also remains positive about the future of global clean hydrogen demand, which is anticipated to grow due to the decarbonization efforts in power plants, particularly in Japan and Korea. Additionally, the carbon tax set to be implemented in Europe starting January 2025 is expected to increase demand for clean hydrogen as a marine fuel, as it will apply to emissions from ships leaving ports.
Air Products & Chemicals has noted that its performance in the United States and European markets has surpassed earlier projections. However, the company's forecasts do not yet include the potential economic recovery in China, which some market observers suggest could occur in the second half of 2024.
The company's cautious stance comes despite early indications that the Chinese economy may show signs of improvement.
InvestingPro Insights
Following Citi's revised outlook on Air Products & Chemicals Inc. (NYSE:APD), real-time data from InvestingPro shows a mixed financial landscape for the company. With a market capitalization of $52.54 billion and a P/E ratio of 21.53, the company is trading at a valuation that demands high expectations for future earnings. Notably, Air Products has a robust history of dividend payments, having raised its dividend for 41 consecutive years and maintained payments for 54 years, underscoring its commitment to returning value to shareholders.
InvestingPro Tips highlight that while analysts have recently revised their earnings expectations downwards for the upcoming period, the company remains profitable with a positive outlook for the year. Investors should be aware of the high P/E ratio relative to near-term earnings growth, which could suggest the stock is priced optimistically. However, the company's long-term profitability and dividend consistency may appeal to investors seeking stability.
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