We issued an updated research report on Praxair Inc.PX on Mar 5. Strengthening end markets, efforts for improving products and services, and commitment toward rewarding shareholders make Praxair a good investment choice for investors seeking exposure in the chemical space.
This industrial gas producer and supplier currently carries a Zacks Rank #2 (Buy) and has the market capitalization of approximately $43.9 billion. Its merger with Linde AG (signed in June 2017) in an all-stock transaction currently awaits regulatory approvals. Per the agreement, Praxair's efficient operating model and Linde's expertise in engineering and technology will create a leading industrial gas company that will have a strong international presence, a large customer base and a solid financial flexibility.
Below we discussed why investors should consider adding Praxair's stock to their portfolio.
Share Price Performance and Earnings Estimate Revision: Praxair's financial performance has been impressive in 2017 with better-than-expected results in all the four quarters. The company delivered an average positive earnings surprise of 3% over the said time frame. Solid results and improved operating conditions in the industry primarily supported the company's share price rally of 35.1% in the year.
Also, market sentiments have been positive for Praxair in the last month. The stock yielded 1.8%, outperforming the 2.2% decline of the industry .
Underpinning the favorable sentiments reflects positive revisions in earnings estimates for the stock. In the last 60 days, eight brokerage firms have raised estimates for 2018, while three firms have increased estimates for 2019. Currently, the stock's Zacks Consensus Estimate for earnings is pegged at $6.64 for 2018 and $7.20 for 2019, representing growth of 5.4% and 3.9% from their respective tallies, 60 days ago.
Competitive Advantage: Diversified business structure has given Praxair a competitive edge over other players in the industry. It currently operates in four business segments - North America, Europe, South America and Asia - largely minimizing its risks of loss from the poor performance of any group. Also, a vast customer base in various end markets, including healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber-optics and steel making; aerospace; and chemicals and water treatment, is a boon.
Exiting 2017, the company had a solid backlog of $1.5 billion, clearly showing customers' preference for the company's world-class technology, high-quality products and gas supply services. Further, in the first month of 2018, Praxair's hydrogen supply contract with Motiva Enterprises LLC was extended and a long-term gas supply agreement with China-based EverDisplay Optronics was signed.
Shareholders Return: Praxair is committed to returning a higher value to shareholders through share buybacks and dividend payments. It distributed dividend totaling $901 million in 2017 while repurchased shares worth $12 million. In January 2018, the company announced a 5% increase in its quarterly dividend rate.
Impressive Near-Term Prospects: We believe that Praxair's constant efforts for improving its products and distribution services as well as strengthening demand for industrial gases and related services will prove advantageous. Notably, industrial gases are being increasingly used in manufacturing, transportation, healthcare, food and beverages, and metal fabrication.
For 2018, the company anticipates gaining from its solid product portfolio, strong end markets and new project wins. Also, new tax reform is anticipated to stimulate capital investments and benefit the company. Earnings in the first quarter of 2018 are projected to be within $1.53-$1.58 per share, reflecting year-over-year growth of 12-15%. Also, it includes a 5 cents of gain from the recent tax reform in the country.
Other Stocks to Consider
Some other top-ranked stocks worth considering in the industry are Methanex Corporation MEOH , Univar Inc. UNVR and Cabot Corporation CBT . While both Methanex and Univar sport a Zacks Rank #1 (Strong Buy), Cabot carries Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .
Methanex has reported better-than-expected results in three of the last four quarters, with an average positive earnings surprise of 9.11%. In addition, earnings estimates for 2018 and 2019 have improved over the past 60 days.
Univar's earnings estimates for 2018 and 2019 have improved in the past 60 days. Also, it has delivered an average positive earnings surprise of 20.83% in the last four quarters.
Cabot's earnings surprise in the last four quarters has been a positive 3.68%. Earnings estimates for fiscal 2018 (ending September 2018) and fiscal 2019 (ending September 2019) have improved over the past 60 days.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.