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Airgas Hits a New 52 Week High on Strong Growth Prospects

Shares of Airgas, Inc. (ARG) 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 has a market cap of $8.4 billion and long-term expected earnings growth of 11%. The stock has delivered a one-year return of about 7%. Average volume of shares traded over the last three months stood at approximately 396K. Over the past 52 weeks Airgas has ranged from a 52-week low of $99.32 on Feb 24, 2014 to the 52 week high of $113.74 on Sep 22.

Growth Drivers

Shares of Airgas started escalating following the strong fiscal first-quarter 2015 results on Jul 24. Airgas’ earnings increased 4% year over year to $1.18 a share in the quarter. Revenues in the reported quarter grew 3% year over year to $1.31 billion. Acquisitions aided sales growth of 2%, both on a consolidated basis and in the Distribution segment, while organic sales were up 1%.

The company 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 earnings per share of $1.25. Moreover, it expects organic sales growth 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 guidance includes 11–16 cents per share of negative year-over-year impact from variable compensation reset following a below-budget year. Airgas currently expects its refrigerants business to make a slightly favorable contribution to its fiscal 2015 earnings.

Airgas expects residential construction activity to increase in the near future driven by strong growth in rental welder business and increasing demand for staging of materials for energy-related construction projects. In addition, stability in mining and heavy manufacturing sectors is expected to drive sales growth.

Airgas is expected to benefit from its strong acquisition pipeline. Notably, in fiscal 2014, the company acquired eleven businesses with aggregate historical annual sales of around $82 million – the largest being The Encompass Gas Group, Inc. This year, 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 in earnings per share for fiscal 2015.

On the helium front, Airgas’ supply chain witnesses a steady growth. Further, in May 2014, Airgas’ operating units raised the prices of various products and gases to combat the rising expenses on multiple fronts, including products, suppliers, labor and benefits, and regulatory compliance. Airgas is also trying to counter the mounting expenditure by investments in infrastructure and technologies. This, ensure a reliable product supply and maintenance of safety practices and will help the company to serve its customers efficiently.

Additionally, in August 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 superior capability in the energy sector value chain will be easily accessible to the local energy industry customers

Other Stocks to Consider

Currently, Airgas carries a Zacks Rank #4 (Sell). Some better performing stocks worth considering in the same industry include LyondellBasell Industries NV (LYB), Valhi, Inc. (VHI) and PPG Industries Inc. (PPG). While LyondellBasell and Valhi sport a Zacks Rank #1 (Strong Buy), PPG Industries carries a Zacks Rank #2 (Buy).

Read the Full Research Report on PPG
Read the Full Research Report on ARG
Read the Full Research Report on LYB
Read the Full Research Report on VHI


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