RBC Capital Markets, a global investment bank, thinks Air Products and Chemicals is nearing a turning point in its cash generation. In a research note published Thursday, the bank said the industrial-gas company is “executing well” and highlighted a $3.3 billion backlog in end markets such as electronics and space. RBC expects fiscal 2027 to be a “transition year” as spending on legacy projects winds down and the company refocuses on its core business.
The key shift, according to RBC, is less about near-term earnings and more about cash. Once capital expenditures (capex) roll off and the company delivers more than mid-single-digit volume growth plus over $250 million in annual cost savings, a larger share of profits should translate into free cash flow—the money left after paying operating costs and capital spending. That cash, in turn, could fund share repurchases by fiscal 2028.
What is Air Products?
Air Products is one of the world’s largest suppliers of industrial gases, providing oxygen, nitrogen, hydrogen and other gases to industries ranging from healthcare to manufacturing. The company has been through a heavy investment cycle, spending billions on large projects—including hydrogen and gasification plants—that have consumed cash but are now nearing completion. For investors, the end of that spending spree is often the moment when a company’s cash profile changes dramatically.
RBC’s note points to a $3.3 billion backlog in areas like electronics and space, which suggests demand remains solid even as the company trims its capital budget. The bank also expects cost cuts to add more than $250 million in annual savings, a figure that would flow straight to the bottom line once achieved.
Why the cash flow matters
For a company coming off a heavy investment cycle, the biggest swing factor is often the cash that stops going into projects. If fiscal 2027 really is the handoff year, then the same business could start producing meaningfully more free cash flow as spending fades and savings show up. That cash is what funds share repurchases, so a free-cash-flow “inflection” is what turns the idea of buybacks into something the company can sustain in fiscal 2028.
RBC trimmed its fiscal 2027 earnings per share estimate to $14.35 from $14.40, a small cut, but lifted its price target to $359 from $346 and kept an outperform rating. The move reflects a shift in how the bank values the stock: the target leans more on free cash flow than on the earnings figure. Once buybacks become credible, investors often focus more on free-cash-flow yield and the reliability of capital returns than on small changes to the earnings forecast.
What it means for investors
For everyday investors, the takeaway is that Air Products may be entering a phase where its financial profile improves even if reported earnings don’t jump immediately. The company’s ability to generate cash after years of heavy spending could support higher shareholder returns, including buybacks, which tend to boost earnings per share over time by reducing the number of shares outstanding.
That said, the transition is not guaranteed. The company still needs to execute on its backlog, deliver the promised cost savings, and avoid any surprises in its end markets. If fiscal 2027 does prove to be the turning point, the stock could re-rate as investors place more weight on cash generation. If not, the delay could weigh on sentiment.
RBC’s $359 price target implies meaningful upside from current levels, but it is just one bank’s view. Investors should consider their own time horizon and risk tolerance before making any decisions. As always, past performance is not a guarantee of future results.
For more on how companies transition from heavy spending to shareholder payouts, see how telecoms are turning network spending into payouts. And for a look at how buybacks are funded, check out Apple’s bond sale to fund buybacks.
