Praxair, Inc. (PX), Air Products & Chemicals, Inc. (APD), Airgas, Inc. (ARG): Clearing the Air in the Industrial Gas Sector

Air Products & Chemicals, Inc. (NYSE:APD) shares look fairly priced with a reasonable business value around $108 a share. Figuring revenues around $10.3 billion, average cash earnings of $1.4 billion at a roughly 13.6% margin, and a slightly higher than historical 16 times multiple, there might be some upside if the recent activist attention can help improve results.

Airgas, Inc. (NYSE:ARG) is a smaller player in the industry with around $5 billion in annual sales. The company had tepid results in its latest quarter. Earnings per diluted share were $1.14, up 1% over prior year adjusted figures and sales of $1.28 billion increased a slight 2%. Organic sales in the quarter were flat and acquisitions contributed most of the sales growth. The company held sluggish business conditions and the negative impact from a recent Environmental Protection Agency ruling on refrigerant production allowances as major reasons for the moderate showing.

Offsetting the negatives was some benefit from the company’s near completion of a SAP enterprise information system multi-year rollout. Airgas, Inc. (NYSE:ARG) is expecting some significant economic benefits from its implementation. They believe the system will yield at least $75 million in annual run-rate operating income additions by the end of 2013.

Airgas, Inc. (NYSE:ARG) shares currently look optimistically priced. This could be due to recent increased interest in the sector, expected industry consolidation, or anticipated bottom line improvements. But fair value calculates to around $98 a share at a slightly elevated 14 times multiple with estimated sales of $5.2 billion and average cash earnings of $520 million at a 10.0% profit margin.

Conclusion

The industrial gas industry looks like an attractive, relatively stable, sector. The companies are generally well run and nicely profitable. Industrial gas stocks, though not on sale currently, look like they might want to be a serious investment consideration whenever offered at a noticeable discount to fair value.

The article Clearing the Air in the Industrial Gas Sector originally appeared on Fool.com and is written by Bob Chandler.

Bob Chandler has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Bob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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