We currently maintain our Neutral recommendation on Praxair Inc. (PX). The company is a leading industrial gas producer and supplier and has operations in North and South America, Europe and Asia.
Why Neutral?
Long-term growth prospects are bright for Praxair especially in the event of growing demand for industrial gases for use in diverse industries, including hydrogen for refining; oxygen for healthcare; and nitrogen and carbon dioxide for oil and gas production. The company’s year-to-date return is roughly 15.4%.
Also, customers’ preference for Praxair’s world class technology, high quality products and gas supply services raises optimism for solid earnings growth, going forward. Additionally, the company’s policy of returning value to shareholders through dividends, share buybacks, strategic acquisitions, joint ventures and long-term contracts are likely to bode well. Currently, we anticipate earnings to grow 11.8% in the long run.
Despite the company’s long-term growth opportunities, it is the near-term concerns surrounding the stock that force us to maintain a neutral stance on the stock. For 2013, strong growth is anticipated from chemicals, energy and emerging markets. However, accounting for the dilution due to pension settlement charge expected in the third quarter 2013, management reduced the high-end of its earnings guidance by $0.05. Sales guidance is constant at $12 billion.
Due to high international exposure, Praxair faces risks arising from foreign currency exchange rates, import and export controls, and other economic, political and regulatory policies of local governments. Also, increase in debt levels are expected to load the company’s financial burden and hence prove detrimental to the overall profitability.
The Zacks Consensus Estimate for Praxair is pegged at $5.95 for 2013 and $6.71 for 2014, representing year-over-year growth of 6.9% and 12.8%, respectively.
Others Stocks to Consider
Praxair currently has a market capitalization of $35.1 billion and carries a Zacks Rank #2 (Buy). Other stocks to watch out for in the industry are FMC Corp. (FMC), BASF SE (BASFY) and Air Products & Chemicals Inc. (APD), each with a Zacks Rank #2 (Buy).
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