Airgas (ARG) is a public, U.S. based gas production and distribution company, focusing mainly on the purchase, repackaging and distribution of gases and other chemicals to customers according to desired specifications. Airgas supplies packaged and bulk gases, welded hardgoods, safety products, and applications technology to the customer, obtaining 90% of the company’s revenue comes from the distribution of gases, while the other 10% is from the gas production operations within the company. Airgas has grown hugely since its inception almost 30 years ago, acquiring more than 400 companies during its growth, managing to survive the recent economic crash in 2008 and regain strength in the 2011 fiscal year. Focusing largely on the needs of the customer, irrespective if the demands are big or small, Airgas is now the biggest packaged gas business in the world. Having more than 1,100 locations in the U.S., over 14,000 associates and over a million clients, Airgas could be regarded as company one should keep an eye on as a potential worthy investment.
The company’s main strategies to date have involved acquisitions, new product offerings, investments in efficient, environmentally friendly, state-of-the-art operations, and expansion into all aspects of the gas distribution market. Most of the company’s revenue comes through acquisitions. Since 2001, Airgas has occupied 400 new locations in the U.S., increased their associates by over 6000, and increased their number of cylinders from 4,000,000 to over 10,000,000. They subsequently now occupy 25% of the U.S. packaged gases and welding hardgoods market, up from 15% in 2001. Their main competitors Praxair (PX), Matheson Tri-Gas, Air Products and Chemicals (APD) Air Liquide (Al) and Linde collectively occupy another 25% of the market, with independents occupying approximately 50% of the market. Since Airgas is the only national player in the U.S., it has been able to get more customers than its competitors, due to being able to offer lower prices, and therefore holds the largest share of the market. This makes Airgas the single largest gas distributing company in the U.S. Air Products and Chemicals made a bid for Airgas after the 2008 economic slump, but Airgas managed to survive that and progress well into a successful fiscal 2011, managing to increase their net earnings by 27% to $285,000,000. A cash flow of $387,000,000 along with other income allowed Airgas to be listed by Fortune 500 as one of the biggest companies in the U.S.
Shareholders of Airgas have received an average annual return of 19% on their investments, with a 15% annual return during the economic slump of 2008-2011, making Airgas among the best in the S&P 500 (GSPC, INX, $SPX). Airgas has experienced a 250% increase in sales in the past decade, and a massive 600% increase in the earnings per share (EPS). While Airgas experienced a drop in the EPS from 2009 to 2010, from $3.12 to $2.68, due to the recession, they experienced a bounce back to an EPS of $3.34 in 2011, a 25% increase, enabling them to have more resources available for the growth of the company in 2012. Their fairly affordable P/E of 23.81 for the 2011 fiscal year encourages more share purchases in the future.
A possible problem with Airgas gaining most of its revenue via acquisitions is the possibility that the smaller companies that it takes over might have interests too far from their primary interest, even if the company is in the same industry. Integrating the smaller company into Airgas can prove challenging, and possibly costly. Furthermore, there lies the risk that Airgas might overpay in the quest to acquire a company, which could hinder the success of Airgas.
While Airgas experienced a great rebound after the recession with a successful fiscal 2011, they face the increasing prices of gas, which could limit their growth and margins in the future. Other problems that they need to watch out for a possible weakening of the dollar, which could lead to customers shopping internationally as well as potential for another recession.