On Jul 7, 2014, we issued an updated research report on Praxair Inc. (PX). Apart from being the largest industrial gas producer and supplier in the Americas, the company is also one of the largest in the world. With the company experiencing 8.5% earnings growth in the past five years, we expect a further increase of 11.70% in the next five years versus 10.6% predicted for the industry.
We believe Praxair is making earnest efforts to benefit from the booming demand for industrial gases. In this regard, the start-up of a new packaged gas filling plant in North Dakota, an oxygen supply plant in Uruguay and an air separation plant in Tennessee are worth mentioning.
Also, Praxair has progressed towards expanding its gas distribution capacity. In Mar 2014, the company acquired two packaged gas distributors, United Welding Supplies in Texas and Best Welders Supply in Oklahoma; while Michigan-based independent packaged gas and welding products distributor, Lake Welding Supply Company, were acquired in Apr 2014.
Praxair anticipates generating roughly 25% of sales from the Manufacturing end market, 17% from Metals, 14% from Energy, 11% from Chemicals, 6% from Healthcare, 8% from Electronics, 8% from Food & Beverages, 2% from Aerospace and 9% from miscellaneous sources by 2017. In addition, the company intends to achieve high single-digit sales growth, of roughly 8% CAGR (compound annual growth rate). This growth rate will include 2−3% contribution from base volume growth, 1−2% from price, 3−4% growth from projects and about 1% from acquisitions.
However, mounting production costs remain a primary concern for Praxair. Recently, the company hiked prices of its industrial, specialty and medical gases to compensate for rising costs. At the same time, due to its high international presence, the company faces risks from foreign currency exchange rates, import and export controls, and other economic, political and regulatory policies of local governments.
The Zacks Consensus Estimate for Praxair is pegged at $6.45 for 2014 and $7.20 for 2015. These estimates reflect year-over-year growth of 8.8% for 2014 and 11.7% for 2015.
Praxair currently has a market capitalization of $38.8 billion and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Celanese Corporation (CE), Ashland Inc. (ASH) and A. Schulman, Inc. (SHLM). All these stocks hold a Zacks Rank #2 (Buy).
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