Air Products & Chemicals, Inc. (NYSE:APD), Bill Ackman’s latest target of shareholder activism, continues to get  upgrades from analysts. Atlantic Equities, which had downgraded APD to Neutral from Overweight in April this year,  has now upgraded the company to Overweight again, according to the latest report dated September 19.

APD weak in most respects compared to peers

The firm upgraded its price target to $125 from $93 on the expectation of the company showing definite growth. The report notes that APD is underperforming its peers, chiefly Praxair, Inc. (NYSE:PX), and has shown weak operating performance, deteriorating asset utilization and poor cost management. Atlantic expects things to get better as an activist pushes the company to improve its position in the market. The firm generally thinks that U.S. gas engineering sector can do better as a whole, and there is room for growth in one aspect or the other among all peers, though Air Products & Chemicals, Inc. (NYSE:APD) is lagging the most.

Capital growth out of sync with EBITDA

The report also notes that Air Products & Chemicals, Inc. (NYSE:APD) has failed to see appreciation in EBITDA in line with the invested capital. In this regard, both Praxair, Inc. (NYSE:PX) and APD have shown EBITDA growth at half the rate of deployed capital, whereas Linde AG (ETR:LIN) (FRA:LIN) has done better in this regard.

Growth in Capital at APD

The report from Atlantic Equities notes, “The performance gap between Air Products and its peers has widened. APD not only has the lowest EBITDA margins of the group, but also the most volatile.”

Construction in progress vs. capital employed

Pershing Square’s involvement a positive

The report notes that there are fixable problems at Air Products & Chemicals, Inc. (NYSE:APD), which can be sorted out once the push of an actvivist hedge fund is involved. Bill Ackman’s PSCM holds 9.8 percent of the company, which amounts to 20.5 million shares.

 “By contrast Air Products’ performance is notably weaker and more volatile than its three peers, suggesting this underperformance is a micro not a macro problem that is the result of a combination of APD’s unfavorable regional mix (exposure to Electronics, Europe, Helium), poor cost management, dilution from the Indura acquisition, weaker capacity utilization and lower incremental returns on investments. Nevertheless, while we view Praxair’s return profile as impossible to replicate, an improvement into line with Air Liquide/Linde seems realistic and we wait to hear how management and/or Pershing Square plan to deliver this.”

Shares of APD are up 32 percent YTD.