While Pershing Square Capital Management remains very tight lipped about what is going on with its massive new position in Air Products & Chemicals, Inc. (NYSE:APD), the company got another upgrade from a brokerage firm, BGC Partners. This comes after the gas engineering company was upgraded by Robert W. Baird & Co to Buy, whereas Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) and SunTrust Banks, Inc. (NYSE:STI) raised their price targets and reiterated their buy rating on the stock.
BGC Partners upgrades Air Products
In today’s report BGC’s Mark Gulley has raised Air Products & Chemicals, Inc. (NYSE:APD) from Sell to Hold, meanwhile increasing their EPS estimates for FY2014 from $5.95 to $6.05. The higher expected earnings would be in part due to the higher tonnage oxygen sales in China in this year and the next, writes Gulley in his new report. BGC fair value estimate is $100, price target is $102.99.
BGC is also expecting a presentation on the company from PSCM at this month’s end, Gulley notes, “We expect PS to draw on its success with other similar engagements, benchmark APD vs. best-in-class Praxair (NYSE: PX, Buy), and draw on statements Air Products made in its hostile takeover attempt of Airgas (NYSE: ARG, Buy). All this during a period of dueling PowerPoint presentations during October and November, leading up to the expected November 29 record date.”
Take a look at Bill Ackman’s Q2 Investor letter here.
If PSCM fails to effectuate change at APD, it would pull down the stock price in mid $90’s, says Gulley. BGC is expecting the discussions between APD and PSCM to reach some concrete point around the time when shareholder base of the company is “frozen” in November and which can then be voted on in next elections. APD has consistently risen since Bill Ackman’s largest investment of all time was made public. PSCM bought shares of the company, a 9.8% position, between May 21 to July 24. After PSCM stopped buying, the company’s shares have risen 4.6% to date.
As Mark Gulley notes, Bill Ackman is expected to handle APD as he has handled his previous successful turnarounds. Of those the most recent and successful one is Canadian Pacific Railway Limited (TSE:CP) (NYSE:CP)
Bill Ackman’s new investment in Air Products
Bill Ackman does not have a large number of positions disclosed. PSCM’s portfolio was highly concentrated with eight long positions that had a total market value of $11 billion at the end of Q1. The new investment in Air Products & Chemicals, Inc. (NYSE:APD) adds a hefty amount to Ackman’s long portfolio. Ackman has some record of investing in industrials, such as in case of Canadian Pacific Railway Limited (TSE:CP) (NYSE:CP). APD is a gas engineering company that is a leading supplier of atmospheric gases, process and specialty gases, performance materials, equipment, and services.
The question related to Air Products & Chemicals, Inc. (NYSE:APD) investment is not whether Ackman will be able to have a successful activist run there, it is whether the changes he plans for APD have the desired effect in increasing shareholder value. Ackman has been successful in moving and shaking boards and having his restructuring plans approved in past. However as we saw in the case of J.C. Penney Company, Inc. (NYSE:JCP), his grand plans have not always transferred to unlocking shareholder value. Ackman has so far been successful at The Procter & Gamble Company (NYSE:PG), where he has a 1% position and where his wish for a change in CEO was granted. So the size of the position has not been a great issue for PSCM, but there are several other factors that can change the outcome.
SunTrust analyst calls Air Products safe haven
In an older report by SunTrust, analysts James Sheehan and Andrew Cash call the company a ‘safe-haven’ investment. They do not see any downside to investing in APD, which has several long term contracts in place spanning over 15-20 years, and a $3 billion project backlog. Sheehan and Cash see Air Products & Chemicals, Inc. (NYSE:APD) more affected by the cyclical growth in the chemicals industry than its competitors, Linde AG (ETR:LIN) (FRA:LIN) (OTCMKTS:LNAGF), Praxair, Inc. (NYSE:PX) which have enjoyed far better share price growth. Air Liquide (OTCMKTS:AIQUY) (EPA:AI), another of APD’s peers, seems to be the only one which has fared worse than Air Products & Chemicals, Inc. (NYSE:APD).
APD has applied a number of plans in the past months to improve operations and earnings stability, which includes divesting off underpeforming businesses like polyurethane intermediates and European homecare. The company has also enacted a cost restructuring to cut down on $210 million in expenses.
Air Products & Chemicals doing well under Bill Ackman
Analysts across the board see Air Products & Chemicals, Inc. (NYSE:APD) doing well under Ackman’s stern gaze, and although they don’t think APD is incapable or sloppy in its business, the major concern of every stakeholder is that it is underperforming its competitors and is not focused on its core business. Bill Ackman is likely to push for more focus on core business, set a timeline for achieving strategic targets.
Bill Ackman’s chances of success at Air Products & Chemicals, Inc. (NYSE:APD) are much better than his chances with his other famous investments, as the investor has a great track record in industrials. Now that Pershing Square is rid of its sour bet on J.C. Penney Company, Inc. (NYSE:JCP), the fund is expected to do much better.
APD has a sound business model, it may be lagging the other two majors of the industry but it has still achieved growth and profits. If Ackman can steer himself through the mess that short in Herbalife Ltd. (NYSE:HLF) has become, his bet on APD might work very well.