Air Products: Sustainable EPS growth above consensus even accounting for NEOM project headwinds (Bernstein)
The core argument is that the market is overly concerned about the risks of the NEOM project.
The core argument is that the market is overly concerned about the risks of the NEOM project. Even if the project brings about 1% EPS headwinds each year from 2027 to 2029, the company will still be able to achieve an average annual EPS growth of 9-10% with its pricing power, production efficiency and new projects, which is higher than market consensus. Company culture change and cost control are cornerstones of the growth framework. The market's concerns about the NEOM large-scale project constitute the main pessimistic expectations, but Bernstein believes that this is precisely an opportunity to create a value depression, because the steady growth of the main business has been underestimated. One sentence conclusion: The market's focus is entirely on the "grey rhino" of NEOM, so much so that it completely ignores the inherent growth momentum of the "cash cow" of Air Products. When the market finally sees the light, the valuation gap will start to narrow. Positive/negative: Positive for security products (APD.US). Its current valuation is at a discount relative to its industrial gas giant peers, and the certainty of EPS growth is the biggest value driver. The market has overpriced NEOM's execution risk and underpriced the robustness of the company's EPS growth structure. Catalysts: 1) The announcement that the NEOM project is officially put into operation; 2) In the quarterly financial report, whether pricing and productivity growth continue to offset inflation; 3) The implementation of the stock repurchase plan.