Pershing Square’s recent increase in its stake in Air Products & Chemicals, Inc. (NYSE:APD) is expected to unlock significant value to shareholders.

Air Products & Chemicals APD

Baird Equity Research recently upgraded Air Products & Chemicals, Inc. (NYSE:APD) to Outperform with a revised price target pegged at $130.

Ackman Enhanced Stake In APD

As reported earlier, Bill Ackman has announced that Pershing Square has taken an almost a 10 percent share in Air Products & Chemicals, Inc. (NYSE:APD). He claimed he didn’t expect investors to start trying to figure out which company was his next target. His investment in Air Products marks his biggest ever.

David J. Manthey and the team at Baird anticipate that activist shareholder William Ackman’s involvement in Air Products & Chemicals, Inc. (NYSE:APD) will drive faster and / or more aggressive actions. The analysts feel Ackman’s entry provides greater conviction that sustained operational progress will be realized by Air Products & Chemicals.

Air Products & Chemicals (APD)’s margins 20/15 By 2015

Baird analysts anticipate that Air Products & Chemicals, Inc. (NYSE:APD) might achieve a 17 percent operating margin for the near term, in line with its previous target for 2011.

David J. Manthey and team, however, feel Air Products & Chemicals should focus on achieving the twin target of 20 percent operating margin and 15 percent ROCE goals outlined by the company in its ‘20/15 by 2015’ targets.

The analysts note that an improvement in operating margin to 20 percent might be within the company’s control, aided by improved productivity and leverage on new assets.

Baird analysts feel Air Products & Chemicals, Inc. (NYSE:APD)’s operational progress could provide an opportunity to largely close the long-standing valuation discount vs PX, in line with analysts’ new price target justification.

Stock Can Touch $150

Baird analysts point out that if Air Products & Chemicals, Inc. (NYSE:APD) achieves its 20 percent operating margin besides sustaining its higher valuation, the company’s stock would ultimately touch $150 creating positive risk/reward even following recent strength.

Deutsche revised APD price target to $120

Echoing Baird’s view, David Begleiter and the team at Deutsche feel Bill Ackman’s involvement might accelerate the narrowing of valuation discount.

Deutsche analysts point out Pershing’s observations in its filing, and state that Air Products & Chemicals, Inc. (NYSE:APD) is undervalued and Pershing intends to engage in discussion with Air Products & Chemicals’ management with respect to governance, board composition, management, operations, assets, capitalization, financial condition and strategic plans.

David Begleiter and the team at Deutsche project Air Products & Chemicals, Inc. (NYSE:APD)’s price at $120 based on its trading at 19.2 times its current year calendar EPS in 12 months. However, the analysts believe Air Products & Chemicals might have to confront increased competition for large onsite projects.