On Sep 25, 2014, Zacks Investment Research upgraded Airgas, Inc. (ARG) to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (sell).
Why the Upgrade?
Airgas posted improved first-quarter 2015 results on Jul 24 wherein earnings increased 4% year over year. Revenues also grew in the quarter aided by 2% growth through acquisitions and organic sales growth of 1%.
Notably, shares of Airgas attained a new 52-week high of $113.74, on Sep 22 and eventually closed at $112.25. This was an all-time high for the Radnor, PA-based industrial, medical and specialty gases and hardgoods supplier.
Airgas expects earnings per share in the range of $1.27 to $1.32 for the second quarter of fiscal 2015, which reflects an increase of 2% to 6% over prior year. Airgas also anticipates organic sales growth will be in the low-single-digits. For fiscal 2015, the company reiterated its earnings per share guidance in the range of $5.00 to $5.20, representing a 6% to 10% year-over-year rise.
The company hopes to benefit from acquisitions, price hikes and recovery in helium position. Airgas acquired eleven businesses with aggregate historical annual sales of around $82 million in fiscal 2014 – the largest being The Encompass Gas Group, Inc. In 2014, Airgas acquired Welding & Therapy Service, Inc. apart from purchasing the assets and operations of Team Welding, Ltd. and Hember Ltd. Acquisitions closed in fiscal 2014 are expected to contribute 1 cent to earnings per share in fiscal 2015.
Additionally, last month Airgas announced the opening of a new facility in Dickinson, ND, to enhance its local product and service capabilities in the Bakken shale oil region. Now the company’s efficiency in the energy sector value chain will be easily accessible to the local energy industry customers.
On the helium front, Airgas’ supply chain witnesses a steady growth. Since the Bureau of Land Management’s (BLM) auction process permits non-refiners like Airgas to access the federal helium reserves on the BLM pipeline, the company expects its helium position to continue improving over the course of the year. Under the Helium Stewardship Act on Jul 31, 2014, BLM conducted the first auction of federal helium.
Further, on May 2014, Airgas’ operating units raised the prices of various products and gases to combat the rising expenses. Airgas is also trying to counter the mounting expenditure by investing in infrastructure and technologies.
Moreover Airgas remains optimistic about residential construction activity based on strong growth in rental welder business and increasing demand for staging of materials for energy-related construction projects.
Other Stocks to Consider
Some other stocks in the same sector worth considering include Akzo Nobel NV (AKZOY), PPG Industries Inc. (PPG) and Valhi, Inc. (VHI). All these stocks carry a Zacks Rank #2 (Buy).
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