Airgas, Inc. (ARG), Air Products & Chemicals, Inc. (APD), Praxair, Inc. (PX): Ballooning Returns or a Bunch of Hot Air?

Incidentally, Airgas resorted to a poison pill a couple of years back, when larger rival Air Products & Chemicals, Inc. (NYSE:APD) was attempting a hostile bid. Airgas’ maneuvers worked, and now Air Products — which has become the target of shareholder activism — has a year before its own defensive move expires.

In the company’s most recent earnings report, McGlade characterized his outlook for the rest of the year as “tempered” and blamed “modest economic growth.” On the bright side, Air Products & Chemicals, Inc. (NYSE:APD) has a project backlog of some $3 billion. It expects that when these projects come online, they will quickly be accretive to earnings and cash flow.

Geographic diversity

Industrial-gasses company Praxair, Inc. (NYSE:PX) serves some of the same end markets as Airgas and Air Products, such as chemicals, energy, and manufacturing. Its business is spread across the globe — which actually hurt Praxair in 2012, amid weak economic conditions and the impact of a strong U.S. dollar versus other currencies. In North America, it grew organic sales and profits at 5% and 10%, respectively, in 2012.

Praxair, Inc. (NYSE:PX) is also being hurt by the slowdown in the non-residential construction industry, which weakens demand for packaged-gas. Praxair is looking to strength in its energy and chemicals segments to offset the weakened demand for packaged gas. About 50% of the company’s project backlog is from customers in chemicals, energy, and electronics end markets across Brazil, Russia, India, China and Korea.

Praxair, Inc. (NYSE:PX) generated $577 million in free cash flow in its second quarter, during which time it paid $177 million in dividends and bought back $152 million in stock. The company’s geographic diversity is attractive, and it continues to invest in new equipment for production plants that command long-term contracts with the markets the company serves.

Conclusion

Airgas, Air Products and Praxair, Inc. (NYSE:PX) trade at relatively similar forward price-to-earnings ratios of 20.4, 18.9 and 20.1. In an industry still recovering from the depths of the recession, I believe Praxair is the best positioned at the moment, despite its slightly higher valuation. It’s too soon to tell whether Air Products’ shareholder-activism mess, could eventually unlock value. And while Airgas is a bet on U.S. industrial activity, I just think it has more of an uphill climb than Praxair, Inc. (NYSE:PX).

The article Ballooning Returns or a Bunch of Hot Air? originally appeared on Fool.com and is written by Gerelyn Terzo.

Gerelyn Terzo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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