APD Air Products and Chemicals Inc

Air Products & Chemicals Inc. (APD) signed two agreements with Valero Energy Corp. (VLO) and Denbury Onshore to boost Texas carbon capture and sequestration project forward. 

Air Products will build a carbon capture and storage system at a Valero Energy refinery in Port Arthur, Texas, to refine and sell about 1 million tons of carbon dioxide a year.

Air Products expects to begin construction on the system in January. The company will start supplying the gas in late 2012 to Denbury Resources Inc., which will further use it to extract oil from wells in Texas. The project valued at $400 million received a grant of $253 million from the U.S. Energy Department in June 2010. Later, the project further received an additional grant of $30 million from the agency.

Recently, Air Products reported its second-quarter fiscal 2011 EPS of $1.39 versus $1.16 in the year-earlier quarter, in line with the Zacks Consensus Estimate of $1.39.

The result included an after-tax cost of $4 million or 2 cents per share, excluding which adjusted EPS amounted to $1.41 versus $1.23 in the year-ago quarter.

Net sales amounted to $2.5 billion versus $2.2 billion in the prior-year quarter, moving ahead of the Zacks Consensus Estimate of $2.4 billion. The improved results were mainly driven by higher volumes in the Electronics and Performance Materials, Merchant Gases and Tonnage Gases segments.

Management seems confident and committed to improve operating performance driven by increased productivity coupled with growth in key markets to facilitate the company register strong results year over year.

Management expects double-digit growth in earnings and revenue and improved return on capital while targeting a margin of 17%. The company has also raised its full-year earnings guidance range to $5.65 and $5.75 per share. The third-quarter EPS is projected in the range of $1.42 to $1.47 per share.

Based in Pennsylvania, Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, a diverse customer base and sustained pricing power. However, soaring energy and raw material costs pose a threat to margin expansion.

In order to compensate for escalating raw material costs, Air Products has been increasing the price for a range of chemicals it manufactures for industrial use. Air Products faces stiff competition from Praxair Inc. (PX) and The Linde Group.

We currently have a Zacks #2 Rank (short-term 'Buy' recommendation) on the stock.

 
AIR PRODS & CHE (APD): Free Stock Analysis Report
 
PRAXAIR INC (PX): Free Stock Analysis Report
 
VALERO ENERGY (VLO): Free Stock Analysis Report
 
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