Forward PE multiple
After discussing analysts’ views and recommendations in the previous part, we’ll discuss Air Products and Chemicals’ (APD) forward PE (price-to-earnings) multiple compared to its peer. As of September 19, 2017, Air Products and Chemicals’ one-year forward PE multiple stands at 21.90x, while its peer Praxair (PX) has a one-year forward PE multiple of 22.40x. The forward PE multiple is one of the valuation methods that considers future earnings.
The PE multiple helps investors compare two or more companies that operate in the same industry. Investors can check which company is overvalued and which company is undervalued.
Air Products and Chemicals trails Praxair marginally
Currently, Air Products and Chemicals is trading at a marginal discount to its peer Praxair. After Air Products and Chemicals posted a higher adjusted EPS (earnings per share), the upward revision in the adjusted EPS for fiscal 2017 resulted in analysts estimating Air Products and Chemicals’ fiscal 2017 adjusted EPS to be $6.23. It’s 17.50% lower than the adjusted EPS reported in fiscal 2016. However, with Air Products and Chemicals winning new business deals, analysts expect its fiscal 2018 adjusted EPS to be $6.91, which implies growth of 10.80% compared to the expected adjusted EPS in fiscal 2017.
Analysts expect Praxair’s fiscal 2017 EPS to rise 4.6% to $5.73. For fiscal 2018, analysts expect Praxair’s EPS to be $6.27, which implies growth of 9.30%. Although Praxair’s fiscal 2018 earnings growth is lower than Air Products and Chemicals, Praxair is trading at a premium due to the merger deal with Linde.
Investors looking to invest indirectly in Air Products and Chemicals can invest in the PowerShares DWA Basic Materials Momentum Portfolio (PYZ). PYZ has invested 3.40% of its portfolio in Air Products and Chemicals. The fund has also invested in Chemours (CC) and FMC (FMC) with weights of 5.0% and 4.80%, respectively, as of September 19, 2017.
In the next part, we’ll discuss Air Products and Chemicals’ stock performance in 2017.