Air Products and Chemicals has delivered strong gains over the past year, and the share price now invites a closer look at whether the cash the business can generate really supports where the stock trades today.
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The stock has returned 23.9% over the past year, which raises the question of whether recent share price strength lines up with the cash flows the business is likely to produce.
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A cash generative industrial gases model with large long term projects can concentrate a lot of value in future years, so the timing and durability of those cash flows matter a great deal for any valuation based on them.
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If you’d rather focus on sales, this one’s for you. See why Air Products and Chemicals’s 5.4x P/S tells a different valuation story.
The issue now is whether the current US$307.11 share price fairly reflects the intrinsic value suggested by a Discounted Cash Flow, based on the stream of cash Air Products and Chemicals can return to investors over time.
If you are weighing whether Air Products and Chemicals justifies its price based on cash generation, it can help to line it up mentally against a wider field of 29 high quality undervalued stocks.
Is Air Products and Chemicals Still Cheap on Cash Flow?
The Discounted Cash Flow (DCF) approach looks at the cash Air Products and Chemicals might return to shareholders in the future and discounts it back to today. The model is built on a 2 Stage Free Cash Flow to Equity framework, which starts from the latest twelve month free cash flow loss of about $1.8b and then assumes the project pipeline supports a swing into positive cash generation.
Analyst inputs in the model point to growing free cash flows in the coming decade, moving into the multi billion dollar range as large projects are expected to contribute. When those projected cash flows are discounted back, the DCF output points to an estimated intrinsic value that sits substantially above the current $307.11 share price. This suggests the market price may not fully reflect the long term cash profile implied by this model. Find out what Air Products and Chemicals could be worth using our Discounted Cash Flow (DCF) estimate.
The Air Products and Chemicals Narrative: What Would Justify Today’s Price?
Simply Wall St Narratives pick up where the Air Products and Chemicals valuation puzzle leaves off by spelling out which paths for growth, profitability and earnings would need to play out for the stock to be worth much more or meaningfully less than today’s price, and they sit on the platform’s Community page. Each scenario links its number to a concrete view on how Air Products and Chemicals’ growth, margins and risk profile could evolve, giving you a reference point you can revisit as new information comes through.
One of the top community narratives on Air Products and Chemicals: 11% undervalued
“The main factor that has to go right is continued capital discipline, including disciplined capex in the US$2.0b to US$2.5b range, exit from weaker projects…”
Discover why this Narrative puts Air Products and Chemicals at 11% undervalued.
One more Air Products and Chemicals check that belongs beside the valuation work
Price, projects and cash flows only tell part of the story, because the people setting priorities and how they are rewarded can tilt outcomes in very different directions. See who runs Air Products and Chemicals and how they are paid.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include APD.
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Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
