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Analyst Blog

Industrial gas producer and supplier, Praxair Inc. (PX - Analyst Report) hosted its Investor Day 2013 on Sep 16, 2013. Discussions on the financial aspects of the company’s goals are briefed below.

Praxair’s management believes that the company is among the leading industrial gas producers worldwide. Long-term growth prospects are quite bright for the company due to growing preferences among customers for Praxair’s world class technology, high quality products and gas supply services.

The company’s intense focus on continuous expansion of its operating regions and addition of new customers to its existing sphere of businesses will help accelerate profit growth in the future.

For a 5-year period (2012-2017), Praxair targets to achieve high single-digit sales growth, roughly 8% CAGR. This includes 2%-3% contribution from base volume growth, 1%-2% from price, 3%-4% growth from projects and roughly 1% from acquisitions.

Sales by 2017 are expected to approximate $16 billion of which roughly 49% is likely to be sourced from North America, 18% South America, 11% Europe, 17% Asia and 5% Surface Technologies. Considering the supply mode, Merchant sales are expected to be 32% of total sales, On-Site sales roughly 29%, Packaged sales 29% and Others roughly 10%.

Of the end markets, manufacturing is likely to be 25% of sales, Metals 17%, Energy 14%, Chemicals 11%, Healthcare 6%, Electronics 8%, Food & Beverages 8%, Aerospace 2% and Others 9%.  

Praxair anticipates operating profit to grow to exceed sales growth, earnings per share to register double-digit growth and return on capital (ROC) to fall within 14%-15% range. The company anticipates hydrogen sales growth to reach $1.7 billion by 2017.

Cash flow generation from operating activities are anticipated to reach $17 billion or 24% of sales. Of this, roughly $7 billion is likely to be returned back to the shareholders through dividend payments and share buybacks. The remaining $10 billion is likely to be invested in the Americas, Asia and Europe.

The current Zacks Consensus Estimate for Praxair for years 2013 and 2014 are pegged at $5.95 and $6.70, reflecting annual growth of 6.8% and 12.7%, respectively. Estimated 3-5 years earnings growth rate for the company is 11.6% as compared with just 9.6% for the peer group.

Praxair has a market capitalization of roughly $36.0 billion and bears a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Eastman Chemical Co. (EMN - Analyst Report), Braskem S.A. (BAK - Snapshot Report) and LSB Industries Inc. (LXU), each with a Zacks Rank #2 (Buy).

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