We currently maintained a Neutral recommendation on Praxair Inc. (PX), a leading industrial gas producer and supplier having operations in North and South America, Europe and Asia.
Why Neutral?
Praxair has been performing well for quite some time and in the trailing twelve months the shares of the company have grown roughly 19%. At current levels we remain optimistic of the company’s long-term growth opportunities but are at the same time cautious of near-term concerns surrounding it.
Praxair’s products are being increasingly favoured for various purposes across diverse industries, including hydrogen for refining; oxygen for healthcare; and nitrogen and carbon dioxides for oil and gas production. Demand for these industrial gases is anticipated to increase manifold going forward. Exiting the second quarter of 2013, Praxair had a high project backlog which reached about $2.3 billion. Majority of the projects are expected to start in 2013 through 2016.
Expansion is on the cards for Praxair as the company remains committed towards acquiring meaningful businesses and development of new products, innovative production and distribution techniques. Also, returning value to shareholders through dividends and share buybacks is an attractive feature of the company.
Despite these long-term aspects, it is the near-term headwinds that keep us on the sidelines for the company. 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. Revenue results in the second quarter 2013 were adversely impacted by negative foreign currency translation to the tune of 1%.
Also, roughly 24% increase in interest expense in the second quarter 2013 indicates higher debt levels. Any further increases in debt will increase the company’s financial burden and hence prove detrimental to the overall profitability.
For 2013, Praxair revised down the high-end of its earnings guidance by 5 cents to account for the impact of negative currency translation as well as an expected $9 million of pension settlement charges in the third quarter 2013.
In the last 30 days, the Zacks Consensus Estimate for Praxair has gone down by 0.2% to $5.96 for 2013 and decreased by 0.9% to $6.71 for 2014.
Others Stocks to Consider
Praxair currently has a market capitalization of $35.5 billion and carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Northern Technologies International Corp. (NTIC), with a Zacks Rank #1 (Strong Buy) while Cytec Industries Inc. (CYT) and PPG Industries Inc. (PPG), each come with a Zacks Rank #2 (Buy).
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