Air Products and Chemicals (APD), mcap=$69.6bn, price $313 vs $315

APD pitch:
– Large-cap producer of atmospheric and industrial gases (oxygen, nitrogen, hydrogen and etc).
– APD is in a great position to take advantage of the hydrogen future, and they have been the most aggressive of their peers in going after the opportunity.
– Expected high-teens IRR over the next 5 years, potentially above this range if hydrogen plays out as hoped.
– 52% of revenue is supplied on-customer-site with 15-20 year contracts, while the rest comes from merchant channels typically under 3-5 year contracts.
– Stable cash flows with proven ability to pass through commodity cost increases.
– 50% of earnings paid out as dividends (2% yield).
– An oligopolistic industry that has historically provided stability and pricing power.

APD valuation:
– Trades roughly in line with historical multiples at 28x forward PE.
– Investors are not paying much for the tremendous optionality around hydrogen, gasification, and carbon capture.

Exp. gain: +100% to $600/share in 5 years.

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