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We issued an updated research report on industrial gas producer and supplier Praxair Inc. (PX - Free Report) on Jun 10, 2016. The company, with a $32.4 billion market capitalization, is known for its industrial gases and related services worldwide.
Growth Drivers
Solid Product Portfolio: One of the most striking features of Praxair is its solid product portfolio. The company’s industrial gases business concentrates on the production and supply of atmospheric gases, including oxygen, nitrogen, argon and rare gases, and process gases like carbon dioxide, helium, hydrogen, electronic gases, specialty gases and acetylene. In addition, the company designs, engineers and builds equipment that produces industrial gases for internal use and external sale.
Vast Customer Base: Praxair caters to the needs of a diversified clientele, especially in North America, South America, Europe and Asia. It serves end-markets including healthcare and petroleum refining, computer-chip manufacturing and beverage carbonation, fiber-optics and steel making, aerospace, and chemicals and water treatment.
Organic & Inorganic Growth Potential: Praxair is consistently making efforts to invent products and improvise services. The company’s world-class technology, high-quality products and gas supply services have gained popularity, evident from a solid backlog of $1.5 billion at the end of first-quarter 2016. Also, the company has been constantly working to expand its business through organic and inorganic means. In Apr 2016, the company acquired five industrial gas businesses while in March, it acquired NOxBOX Ltd. from U.K.-based Bedfont Scientific Limited. Recently, the company completed the acquisition of the European carbon dioxide business of Yara International ASA.
Long-Term Targets: By 2017, Praxair aims to achieve a high single-digit sales growth rate, including a 2−3% contribution from base volume growth, 1−2% from price, 3−4% from projects and about 1% from acquisitions. Total revenue is expected to be $16 billion. Cash flow generation from operating activities is expected to reach $17 billion or 24% of sales. Also, the company is committed to rewarding its shareholders through dividends and share buybacks, and at the same time, it aims to improve profitability through cost-saving actions.
Near-term Headwinds
Highly Leveraged: Praxair is highly leveraged company with a long-term debt balance of approximately $9.2 billion at the end of first-quarter 2016. Its debt-to-capital ratio was 62.9% in the first quarter, up from 62.4% in the year-ago quarter. If unchecked, higher debt levels might increase the company’s financial obligations and prove to be detrimental for its profitability.
Forex Losses: International businesses have exposed Praxair to risks arising from unfavorable foreign currency movements. In first-quarter 2016, the company’s sales were adversely impacted by 7% due to adverse foreign currency movements. For 2016, the company anticipates forex losses to affect earnings per share by 7%.
Other Headwinds: Praxair is also exposed to risks arising from high production costs, stiff competition, and extreme dependence on energy. In addition, the company faces risks from geopolitical issues in foreign end markets. These uncertainties can adversely impact the company’s growth in the near term.
Conclusion
Praxair currently carries a Zacks Rank #3 (Hold). We believe the above-mentioned pros and cons clearly justify the company’s investment value.
However, there are certain stocks in the chemical industry that have been performing better-than Praxair and have gained high investment value. They include Albemarle Corporation (ALB - Free Report) , Axiall Corporation and Innophos Holdings Inc . All these stocks sport a Zacks Rank #1 (Strong Buy).
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Praxair's Long-Term Potential Solid, Near-Term Risks Remain
We issued an updated research report on industrial gas producer and supplier Praxair Inc. (PX - Free Report) on Jun 10, 2016. The company, with a $32.4 billion market capitalization, is known for its industrial gases and related services worldwide.
Growth Drivers
Solid Product Portfolio: One of the most striking features of Praxair is its solid product portfolio. The company’s industrial gases business concentrates on the production and supply of atmospheric gases, including oxygen, nitrogen, argon and rare gases, and process gases like carbon dioxide, helium, hydrogen, electronic gases, specialty gases and acetylene. In addition, the company designs, engineers and builds equipment that produces industrial gases for internal use and external sale.
Vast Customer Base: Praxair caters to the needs of a diversified clientele, especially in North America, South America, Europe and Asia. It serves end-markets including healthcare and petroleum refining, computer-chip manufacturing and beverage carbonation, fiber-optics and steel making, aerospace, and chemicals and water treatment.
Organic & Inorganic Growth Potential: Praxair is consistently making efforts to invent products and improvise services. The company’s world-class technology, high-quality products and gas supply services have gained popularity, evident from a solid backlog of $1.5 billion at the end of first-quarter 2016. Also, the company has been constantly working to expand its business through organic and inorganic means. In Apr 2016, the company acquired five industrial gas businesses while in March, it acquired NOxBOX Ltd. from U.K.-based Bedfont Scientific Limited. Recently, the company completed the acquisition of the European carbon dioxide business of Yara International ASA.
Long-Term Targets: By 2017, Praxair aims to achieve a high single-digit sales growth rate, including a 2−3% contribution from base volume growth, 1−2% from price, 3−4% from projects and about 1% from acquisitions. Total revenue is expected to be $16 billion. Cash flow generation from operating activities is expected to reach $17 billion or 24% of sales. Also, the company is committed to rewarding its shareholders through dividends and share buybacks, and at the same time, it aims to improve profitability through cost-saving actions.
Near-term Headwinds
Highly Leveraged: Praxair is highly leveraged company with a long-term debt balance of approximately $9.2 billion at the end of first-quarter 2016. Its debt-to-capital ratio was 62.9% in the first quarter, up from 62.4% in the year-ago quarter. If unchecked, higher debt levels might increase the company’s financial obligations and prove to be detrimental for its profitability.
Forex Losses: International businesses have exposed Praxair to risks arising from unfavorable foreign currency movements. In first-quarter 2016, the company’s sales were adversely impacted by 7% due to adverse foreign currency movements. For 2016, the company anticipates forex losses to affect earnings per share by 7%.
Other Headwinds: Praxair is also exposed to risks arising from high production costs, stiff competition, and extreme dependence on energy. In addition, the company faces risks from geopolitical issues in foreign end markets. These uncertainties can adversely impact the company’s growth in the near term.
Conclusion
Praxair currently carries a Zacks Rank #3 (Hold). We believe the above-mentioned pros and cons clearly justify the company’s investment value.
However, there are certain stocks in the chemical industry that have been performing better-than Praxair and have gained high investment value. They include Albemarle Corporation (ALB - Free Report) , Axiall Corporation and Innophos Holdings Inc . All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>