Air Liquide Stock Has 17% Upside, Mizuho Says in New Coverage

Mizuho initiated coverage on industrial gas group Air Liquide (AIRP) with an 'Outperform' rating and a €200 price target, suggesting a potential 17% upside. The bank described the company as a "rare hybrid of recurring-revenue services and unregulated growth utility" in a note to clients on Monday.

Analyst Thesis

Mizuho's positive outlook is based on Air Liquide's resilient business model, which combines long-term investments with short-cycle sales. Analyst John Roberts highlighted that large customers operate under long-term, take-or-pay contracts that allow for cost pass-throughs, ensuring stable revenue.

Furthermore, recurring demand from merchant and packaged-gas customers supports the company's pricing power. This structure provides resilient earnings throughout various economic cycles, according to the bank.

Growth Drivers and Efficiencies

Mizuho identified two key factors boosting the company's earnings outlook: internal efficiency programs and increasing exposure to the high-growth electronics industry. The firm noted that Air Liquide is on track to generate significant cost savings, including €497 million in 2024 and €631 million in 2025.

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At the same time, the electronics segment, which accounts for about 10% of sales, is expanding by 8% to 9%. This sector's importance is growing, representing approximately half of the company's investment backlog in the first half of the year, up from around 40% previously.

Market Catalysts and Peer Comparison

The bank pointed to Air Liquide's upcoming Capital Markets Day on October 5 as the next potential catalyst for the stock. Mizuho expects the event will focus on the electronics business and may introduce new margin improvement targets of at least 40 basis points per year beyond 2027.

Mizuho also anticipates Air Liquide will continue to narrow the return-on-capital and valuation gap with its primary competitor, Linde. The note stated that the adjusted return-on-capital gap between the two firms has already tightened from 10% in 2021 to a projected 6.7% in 2025.