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Praxair (PX) Worth Buying on Solidifying Product Demand

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We issued an updated research report on Praxair Inc. (PX - Free Report) on Jun 1.

With approximately $44.9 billion market capitalization, this industrial gas producer and supplier currently carries a Zacks Rank #2 (Buy), a revision from its earlier Zacks Rank #3 (Hold). The stock’s investment appeal is further accentuated by a VGM Score of B.

It’s worth mentioning here that in June 2017 Praxair signed an agreement to merge with Linde AG. The all-stock transaction currently awaits regulatory approvals and is anticipated to be completed in the second half of 2018. The resultant company is believed to be a leading industrial gas company with strong international presence, a large customer base and solid financial flexibility.

Let’s delve deeper and discuss why investors should consider adding Praxair’s stock to their portfolio.

Financial & Share Price Performances, Earnings Estimate Revision: Praxair’s financial performance has remained better-than-expected for quite some time now. Earnings beat of 5.77% for the first quarter of 2018 marks the company’s fourteenth consecutive quarter of impressive results. Also, over the same period, earnings have grown from $1.57 per share to $1.65 in first-quarter 2018.

Solid financial results have been one of the reasons for the company’s stock price rally of 4.6% in the last three months. This return comfortably outperformed 1.8% decline recorded by the industry and 1.2% fall in the Zacks Basic Materials sector.



Also, in the last 60 days, the company’s earnings estimates for 2018 and 2019 have been increased by seven and five brokerage firms, respectively. Currently, the stock’s Zacks Consensus Estimate is pegged at $6.76 for 2018 and $7.36 for 2019, representing growth of 1.8% and 2.2% from their respective tallies, 60 days ago.

Favorable Operating Conditions: We believe that strengthening U.S. economy — evident from healthy growth in GDP, rise in industrial production, improving housing market, increasing job additions and many more — as well as healthy growth prospects of the global economy, will spur demand for industrial gases.

Also, growing applications of industrial gases — especially that of hydrogen in the refining industry, oxygen in healthcare, and nitrogen and carbon dioxide in oil and gas industry — has been beneficial for Praxair. Moreover, gas-supply contracts with Samsung, Marathon Petroleum Corp. (MPC - Free Report) and many more, as well as solid backlog of $1.5 billion while exiting the first quarter of 2018, underpin preferences for the company’s products.

Dividend Payments: Praxair is an ardent believer of rewarding shareholders handsomely, especially through dividend payments. Over the last five years, its annual dividend rate has increased 31.3% from $2.40 per share in 2013 to $3.15 in 2017. After the 5% hike in quarterly dividend rate announced in January 2018, the company’s annual dividend rate stands at $3.30. Also, the company’s dividend payout rate has grown from 40.5% in 2013 to 53.8% in 2017.

Solid Growth Prospects in the Near and Long Term: Strengthening end markets, sound product portfolio, rise in global industrial production and project wins are few factors that will drive Praxair’s growth in the quarters ahead. The company anticipates earnings of $1.67-$1.72 per share in the second quarter of 2018. The projection reflects year-over-year growth of 14-18% and includes 5 cents gain from the recent tax reform in the country.

Moreover, in the next three to four years, the company anticipates delivering annual earnings growth of 3%, on the back of solid backlog and potential growth opportunities.

Other Stocks to Consider

Some other stocks worth considering in the industry are Celanese Corp. (CE - Free Report) and FMC Corp. (FMC - Free Report) . Both the 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 each of these stocks improved for the current year and the next year. Also, average positive earnings surprise for the last four quarters was 7.02% for Celanese Corporation and 8.23% for FMC Corporation.

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