Air Products and Chemicals: Margin Rebound To Drive Earnings Surge

Moretus Research has initiated coverage on Air Products and Chemicals (APD) with a Strong Buy rating and a $368 price target, projecting a 36% upside. The bullish stance is predicated on an underappreciated margin rebound driven by cost resets and the robust, contract-driven cash flow from APD's core industrial gas franchise, which is expected to exceed consensus expectations for FY25-26. Despite facing helium and broader macro headwinds, the valuation assumes a mean reversion to 17x FY26E EV/EBITDA, offering a compelling risk/reward profile, further bolstered by the company's margin and cash flow durability alongside its hydrogen optionality.

Analysis

Moretus Research has initiated coverage on Air Products and Chemicals (APD) with a "Strong Buy" rating and a $368 price target, implying a significant 36% potential upside. The core of this bullish thesis rests on an expected, yet underappreciated, margin rebound driven by cost resets, which are projected to push APD's performance above consensus expectations for fiscal years 2025-2026. The valuation is based on a mean reversion to a 17x FY26E EV/EBITDA multiple, suggesting a favorable risk/reward profile. This positive outlook is maintained despite acknowledged headwinds from the helium market and broader macroeconomic pressures. The analysis underscores the resilience of APD's contract-driven cash flows from its core industrial gas business and highlights the compelling long-term value of its hydrogen optionality, while noting that project execution, capital discipline, and energy policy shifts are the key risks to monitor.

Key Decisions for Investors

• Investors may consider the 36% potential upside to the $368 price target as a compelling entry point, predicated on the analyst's variant view of a margin recovery not yet priced in by the market.
• It is critical to monitor APD's forthcoming earnings for evidence of margin expansion and the successful execution of its cost-out programs, as these are the primary catalysts for the bull case.
• While the outlook is positive, investors should weigh the investment against key risks such as project execution, capital discipline, and potential changes in energy transition policy that could impact the valuable hydrogen growth option.