The other day, a neighbor knocked on my door to ask me if I could do a welding repair on his riding lawnmower. Welding is tricky business, and it’s more art than science. Making a good strong weld takes many hours of practice making bad ones. I can personally attest to this.

My wire-feed welder surrounds the welding area with carbon dioxide gas (CO2), which keeps oxygen away from the weld site. This results in a strong professional looking weld.

As I started the job, I realized I was out of CO2, and would have to make a quick trip to my local distributor, Airgas Inc. (NYSE: ARG) for a refill. The reasons I go there are the same as why you need to take a look at this unique company.

I’ve never been when they weren’t busy – this visit was no exception. And for good reason: Airgas is the largest distributor of packaged medical, industrial and specialty gases in the country. The company sells over 43 specialty gases from nearly 1,100 retail and service stores nationwide from their base in Radnor, Pennsylvania.

Airgas Inc. – The Largest Producer of CO2 & Nitrous Oxide

Founded in 1982, Airgas is the largest producer of CO2 (both liquid and gas), dry ice (frozen CO2) and nitrous oxide (more commonly known as laughing gas). Airgas maintains over 30 regional specialty gas research and development laboratories and operates more than 150 gas filling stations.

• CO2 in its various forms is used in the medical, industrial and food preparation industries.
• Nitrous oxide is used in the medical and dental industries as an anesthetic and also as an aerosol spray propellant.

Airgas manufactures its various gases at 14 air separation plants located around the country. They operate 19 plants that manufacture acetylene – a highly explosive, specialty gas used primarily by the chemical industry to synthesize other chemicals or for high temperature welding and cutting.

In addition, Airgas also sells gas related products such as regulators, flow meters, check valves, gauges, purifiers and gas detection equipment. It maintains a full line of welders and welding equipment as well.

Business Couldn’t Be Better For Airgas Inc.

Business couldn’t be better for Airgas Inc. – even in this tough economic environment. On October 23, Airgas announced record earnings and strong growth in sales and operating income for its second quarter ending September 20.

Quarterly earnings were up 44% to $72.8 million on a sales increase of 15% to $1.2 billion – fueled by acquisitions, an increase in same-store sales of 8% and a 12% hike in gas sales and cylinder rental.

Peter McCausland, the company’s CEO since its inception, said, “We are performing very well in a moderating economic environment, and our expanded offering that targets infrastructure construction has been successful in gaining new business, particularly in the power and energy sectors.

“About 40% of our sales come from our strategic products, which posted 11% organic growth in the quarter and are focused on the medical, life sciences, research, environmental and food and beverage markets.

“Acquisition activity has been strong in the first half of our fiscal year, with a total of six acquisitions and $142 million of acquired annual revenue to date. We are expanding returns by effectively integrating acquisitions and leveraging our extensive distribution infrastructure.”

Airgas Inc. Increases Quarterly Dividends

Things are going so well, in fact, Airgas Inc. reiterated its 2009 full year earnings guidance of $3.30 to $3.40 per share, and increased the quarterly dividend 33% to $0.16 per share.

The company continues to generate strong free cash flow, even while funding numerous plant projects that will be operational in the next year. Airgas is somewhat insulated from the economic slowdown since many of its products are used in maintenance and repair of aging infrastructure, and in the medical and food industries.

Shares of Airgas hit a 52-week low of $27.09 on October 24 and have soared 37% in just the last week. At present levels, the stock trades at a very respectable P/E of 12 and sports a 1.72% dividend yield.

As many of you who’ve been regular Investment U readers know, I’m a big fan of& the infrastrucutre and energy sectors. As we wait for the broader markets to recover, the infrastructure service sector looks like it will be a great place to invest. Investors who want more exposure to this sector might want to consider adding a few shares of Airgas to their portfolio.

Good investing,

David Fessler
Investment U