PX to Buy CO2 from Honeywell

Industrial gas producer and supplier, Praxair Inc. ( PX - Analyst Report ) recently entered into an agreement to purchase carbon dioxide from Honeywell Resins & Chemicals, one of the leading nylon resin and caprolactam producers in the world.

The agreement will span over 15 years, according to which, Praxair will purify and liquefy the by-product from Honeywell's caprolactam facility in Hopewell, VA. The whole process will be carried out in Praxair's facility at Honeywell's site. The plant, which is expected to have around 450 tons of daily production capacity, is slated to commence work in the third quarter of 2013.

The resultant product from Praxair's new facility will be used for food freezing purposes and beverage applications.

We believe such agreements/tie-ups will help Praxair achieve its long-term target of annual organic sales growth of 8%-12%; operating profit growth of 10%-15%, and earnings growth of 12%-18% by 2015. Growing popularity of Praxair's technologically advanced work has led to around $2.5 billion in backlogs for the company. Moreover, we appreciate the company's earnest effort in returning values to shareholders through dividends and share buybacks which makes the stock all the more attractive.

The current Zacks Consensus Estimate for the third quarter of 2012 is $1.40, representing a year-over-year decrease of 0.26%. Estimates for 2012 and 2013 are $5.64 and $6.37, reflecting annual growth of 3.88% and 12.96%, respectively.

We maintain a Neutral recommendation on Praxair. The stock also carries a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating. The company’s prime competitor Air Products & Chemicals Inc. ( APD - Analyst Report ) also bears a Zacks #3 (Hold) rating.