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Praxair's Long-Term Potential Solid, Runs Near-Term Risks

PX FMC IPHS CC

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We issued an updated research report on industrial gas producer and supplier, Praxair Inc. (PX - Free Report) on Nov 22, 2016. The company is one of the leading producers and distributors of industrial gases, including atmospheric and process gases. It also provides related services worldwide. Praxair currently has a $33.3 billion market capitalization.

Praxair Inc. currently carries a Zacks Rank #3 (Hold). The company has solid long-term growth potential, but the risks from near-term headwinds can restrict its growth momentum.

Increasing application of industrial gases, that of hydrogen in the refining industry, oxygen in healthcare, and nitrogen and carbon dioxide in oil and gas industry, will boost demand for Praxair’s products and services. On the back of this, the company hopes to generate roughly 25% 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.

Also, working toward development of new products, improvement of gases distribution capabilities and rewarding shareholders remain a priority for Praxair. At the end of third-quarter 2016, the company had a solid $1.4 billion backlog. In Oct 2016, the company expanded its on-site business for wastewater customers in China, signed a long-term contract with MEGlobal to supply oxygen and nitrogen to the latter’s new ethylene glycol plant and formed a joint venture with GE Aviation to work on specialized coatings. In addition, the company’s start-up projects in Antwerp and Peru will prove to be a prime driving force in the quarters ahead.

However, Praxair is 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. Also, unfavorable movements in foreign currencies as well as adverse import and export controls and uncertain economic conditions in the foreign nations might hurt its international operations.  

In addition, Praxair is a highly leveraged company, with a debt-to-capital ratio of 62% in third-quarter 2016. If unchecked, higher debt levels might increase the company’s financial obligations and prove detrimental for its profitability.

Some better-ranked stocks in the chemical industry include The Chemours Company (CC - Free Report) , FMC Corp. (FMC - Free Report) and Innophos Holdings Inc. (IPHS - Free Report) . Each of the stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company posted an average positive earnings surprise of 153.83% in the last four quarters. Also, earnings estimates for 2016 and 2017 have been revised upward over the past 60 days.

FMC Corp’s earnings estimates for 2016 and 2017 have been revised upward in the last 60 days. The average earnings surprise for the last four quarters was a positive 13.07%.
 
Innophos Holdings reported better-than-expected results in the last quarter, with a positive earnings surprise of 13.64%. Also, earnings expectations for 2016 and 2017 have improved over the past 60 days.

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