Industrial gas producer and supplier, Praxair Inc. (PX) through its Chinese subsidiary, Praxair China, signed a long-term gas supply contract with China-based Yankuang Guohong Chemical Co., Ltd. and Yankuang Group, one of the largest coal exporters and producers in China. Financial terms of the transaction were not disclosed.
Praxair China will acquire and replace Yankuang Guohong’s existing air separation units with a new air separation plant having a daily capacity of 3,000 tons of oxygen. The gases expected to be produced in the plant by 2014 will be used for coal gasification process leading to production of methanol and other chemicals.
Praxair China’s win of the contract is crucial as it strengthens the company’s presence in the region. Moreover, series of contracts won by Praxair throughout the world only shows very clearly the growing preferences among customers for the company’s world class technology, high quality products and gas supply services.
We see solid long-term growth prospects for Praxair with the use of industrial gases in areas, such as chemical processing, petroleum refining, metal production, fabricating, electronics and health care industries. By 2015, the company targets to achieve annual organic sales growth of 8%-12%; operating profit increase of 10%-15%, and earnings growth of 12%-18%.
The current Zacks Consensus Estimate for the second quarter of 2012 is $1.43, representing a year-over-year increase of 3.93%. Estimates for the fiscal years 2012 and 2013 are $5.82 and $6.62, reflecting annual growth of 7.19% and 13.82%, respectively.
We maintain a Neutral recommendation on Praxair. Currently, the stock carries a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating.
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