Airgas Inc.: Why You Should be Cautiously Bullish on ARG Calls

We continue our options trading activities this week as we explore the options of Airgas Inc. (NYSE:ARG). Airgas with its market capitalization of $8.74B is a supplier of industrial, medical and specialty gases, and hard goods, such as welding equipment and related products. The Company is also a producer of atmospheric gases, carbon dioxide, dry ice and nitrous oxide and a supplier of safety products, refrigerants, ammonia products and process chemicals. The Company also offers supply chain management services and solutions, and product and process technical support across many customer segments.

Why I Am Interested in Airgas Today

Airgas caught my attention today after the company started soaring to new highs in the last one month. Shares of Airgas, Inc. made a new 52-Week high of $118.75 last week on Friday to mark a 19.56% increase over its 52-Week low of $99.32.

Airgas has made 17 new highs in the last one month and the stock is up 6.43% within the same period. The stock is trading above its 20, 50 and 200-day moving averages as it trades with a technical support level at $115.74. I am most impressed by the stock’s RSI of 66.20, which suggests that the buying action is just starting out on the stock.

Stock Fundamentals

One of the major reasons behind the sustained rally in Airgas is the strong business fundamentals that the stock has. For instance, the stock has a P/E ratio of 24.23 on market capitalization of $8.73. The stock has a dividend yield of 1.89% while revenue is expected to grow by 5.30% this year and by another 6.60% next year.

Earnings estimate for Airgas are also optimistic as the street expects earnings to increase by 7.00% this year and by another 13.50% year. More so, it is estimated that earnings will increase by an additional 13.50% next year before it continues at an annual rate of 11.27% over the next 5 years.

Impressive Financials

The recent rally in Airgas can also be traced to the outstanding second quarter (Q2 2015) results that the company posted about a month ago. Airgas reported earnings of $1.30 per share to mark a 4% increase over the earnings of $1.25 from the same period last year.

The reported earnings also beats the consensus estimate on earnings $1.25 per share. The company reported revenue of $1.36B to mark a 6% annual increase and to beat the consensus estimate of $1.33B. Going forward, the company expects earnings per share in the range of $5.00 to $5.10 in fiscal 2015 to suggest a 6% and 8% year-over-year increase.

How to Trade ARG Options

I am optimistic about ARG options going forward and I think that the bullish bias could still be rewarded going forward. However, we should not lose sight of the fact that Airgas might be nearing a peak in the current rally; hence, it might not be too smart to stick out your neck too much on Airgas. I recommend buying the ARG Jan 2015 120.000 call (ARG150117C00120000) at an asking price of $1.75 per share.

— Daily Option Alerts

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