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Praxair's Yara Freeport Contract to Boost Hydrogen Business

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Praxair Inc. (PX - Free Report) yesterday announced that it commenced supplying gases — hydrogen and nitrogen — to Yara Freeport LLC. Financial terms of the supply agreement were not disclosed.

Yara Freeport LLC was founded in 2014 as Yara International ASA and BASF Corporation collaborated to build an ammonia plant with an annual production capacity of 750,000 metric tons. Per the terms of the joint venture, Yara International owns 68% of Yara Freeport LLC while the rest 32% is with BASF. The plant, situated in Freeport, TX, was built using $600 million and opened on Apr 11, 2018.

In the last six months, Praxair’s shares have yielded 4% return, outperforming 3.4% decline of the industry it belongs to.



Inside the Headline

Per the terms of the agreement, Praxair will be supplying roughly 2,000 tons of nitrogen and 170 million standard cubic feet of hydrogen every day to the ammonia plant. For this contract, the company spent $400 million for enhancing production capacity of nitrogen and hydrogen as well as extending pipeline systems in the Gulf Coast.

This long-term contract further fortifies Praxair’s hydrogen business. The company is running more than 50 production facilities and seven pipeline systems, as hydrogen is being increasingly used in various industries, especially in refineries and chemical industries.

Contract: A Boon for Praxair

We believe that increasing application of industrial gases in manufacturing, transportation, healthcare, food and beverages along with metal fabrication industries is an advantage for Praxair. This, along with the company’s initiatives for improving products and services, has helped it win many contracts over time. Exiting fourth-quarter 2017, it had a solid backlog of $1.5 billion.

In January 2018, the company signed a long-term agreement to supply nitrogen, oxygen, helium and other gases to China-based EverDisplay Optronics. For this contract, it will build and operate various air-separation plants for the latter, which will supply 720 tons of nitrogen daily to EverDisplay Optronics' AMOLED (6th generation) project.

Also, in the same month, the company announced the expansion of its hydrogen supply contract with Motiva Enterprises LLC. Per this agreement, the company will supply more hydrogen to Motiva for meeting the additional demand that was created from the expansion of a hydrocracker unit and diesel hydrotreater in the Port Arthur Refinery in 2016.

Zacks Rank & Stocks to Consider

With $42.2 billion market capitalization, Praxair currently carries a Zacks Rank #3 (Hold). Also, its earnings estimates for 2018 and 2019 have remained stable in the last 60 days. Currently, the Zacks Consensus Estimate is pegged at $6.64 for 2018 and $7.20 for 2019.

Praxair, Inc. Price and Consensus
 

Praxair, Inc. Price and Consensus | Praxair, Inc. Quote

It will be interesting to watch how Praxair and Linde proceed to get the required regulatory approvals for their pending merger. Per recent news, the companies are working toward selling some of their assets and have selected bidders for the same.

Two better-ranked stocks worth considering in the industry are Kronos Worldwide Inc. (KRO - Free Report) and Methanex Corporation (MEOH - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for the two stocks improved for the current year. Also, average positive earnings surprise for the last four quarters was 35.01% for Kronos Worldwide and 9.11% for Methanex.

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