We issued an updated research report on industrial gas producer and supplier Praxair Inc. PX on Jun 23, 2015. Despite solid long-term growth potential, near-term headwinds are hurting the company’s investment value.
The attractive features of the stock are its diversified product portfolio and world-class services. Also, a widening application of industrial gases is increasing demand for Praxair’s products. The company aims to achieve sales growth of roughly 8% by 2017, with revenues reaching $16 billion.
Notwithstanding these long-term positives, Praxair’s international presence exposes it to risks related to uncertain economic conditions in the foreign nations it serves as well as unfavorable fluctuations in foreign currency exchange rates. Adverse currency movements not only impacted the company’s results severely in first-quarter 2015, but are also anticipated to hurt revenue and earnings per share growths by 10% and 4−8%, respectively in 2015.
To add to the woes, rising production costs, stiff competition, and extreme dependence on energy continue to be other major concerns for Praxair. Huge debt levels worth $8.8 billion, if left unchecked, will inflate the company’s financial obligations, subsequently denting its profitability growth.
Praxair, with a market capitalization of $35.6 billion, currently carries a Zacks Rank #4 (Sell). The ranking is clearly justified by near-term concerns surrounding the stock that led to downward revisions in earnings estimates. Over the last 60 days, the Zacks Consensus Estimate for Praxair has decreased 4.3% to $6.02 per share for 2015 and 4.9% to $6.66 for 2016.
Also, some of Praxair’s prime competitors are performing well, having gained high Zacks investment rankings. Among better-ranked stocks in the chemical-diversified industry, companies such as LyondellBasell Industries N.V. LYB, Stepan Company SCL and Trecora Resources TREC sport a Zacks Rank #1 (Strong Buy).
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