Air Products: Margin Rebound to Drive Earnings Surge

We initiate coverage on APD with a Strong Buy rating and a $368 PT. APD provides atmospheric and

process gases, related equipment, and services to customers in energy, manufacturing, healthcare, and advanced technologies worldwide. Beneath the steady industrial franchise, APD quietly engineered a cost and capital reset to beat both peer cons & history just as multiple mean reversion looks upon us. All investors care about is helium disruption and lump sum margin compression, yet our work suggests it will be a less savage helium hit (–$150MM, SS –2X) and the unknown $100MM cost- outs banked all set to drive FY25E $5.0B to FY26E $5.7B EBITDA (both 10-20% above SS). Even as we account for transient margin compression in FY25 with a restoring to 24% in FY26 from a balanced mix of pricing, productivity and a more tempered D&A only phase-in versus market discount, valuation stays deliberately modest rolling forward to 17.0X FY26E EV/EBITDA from today’s market froth — painstakingly reanchoring amidst the stickiest of inflation and structurally higher real rates as documented across our recent macro research from Citi and Goldman Sachs. Our model excludes any optionality on Louisiana blue hydrogen or the Saudi ammonia asset before FY26, and APD's implied equity value suggests 29-36% upside from here. If real rates really bite, then multiple mean reversion could accelerate faster than modeled. Still, for the investor's looking for resilient cash flow + within secular hydrogen optionality on their own terms, we like the asymmetry here.