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Praxair Holds Solid Organic & Inorganic Profile; Risks Exist

We issued an updated research report on industrial gas producer and supplier Praxair Inc.PX on Sep 30, 2015. While the company's portfolio expansion initiatives are strengthening its global foothold, certain headwinds are restricting its growth momentum in the near term.

Praxair has been making diligent efforts to expand its helium sourcing in the U.S., having signed long-term purchase agreements with Castleton and Nacogdoches in Sep 2015. Such expansionary measures will help the company satisfy the growing demand for helium, which is used largely in magnetic resonance imaging, fiber optic and semiconductor manufacturing, lifting for blimps and balloons, automobile airbags and leak detection.

In addition, Praxair has been enhancing its carbon dioxide production capabilities. In Sep 2015, the company signed an agreement to acquire the European carbon dioxide business of Yara International ASA. The acquisition is anticipated to close in first-quarter 2016. Also, the company bought Peru-based Tecnogas, a producer and distributor of carbon dioxide and other industrial gases.

We believe such organic and inorganic growth strategies will help Praxair fulfil its long-term targets. By 2017, the company's sales growth is predicted to scale high-single digit, including a 2−3% contribution from base volume growth and about 1% from acquisitions.

Despite having a well-diversified portfolio and customer base, Praxair's margins and profitability is adversely impacted by rising production costs. Also, the company's high debt levels, if unchecked, might increase its financial obligations and hurt its profitability.

At the same time, stiff competition, uncertain global economic conditions, unfavorable foreign currency movements and extreme dependence on energy might adversely impact the company's financials in the near term.

Praxair, with a market capitalization of $29.2 billion, currently carries a Zacks Rank #3 (Hold). Some of the company's prime competitors are performing well, having gained high Zacks investment rankings. Better-ranked stocks in the chemical-diversified industry include Arkema S.A. ARKAY , Koppers Holdings Inc. KOP and Air Products & Chemicals Inc. APD . While both Arkema S.A. and Koppers Holdings sport a Zacks Rank #1 (Strong Buy), Air Products & Chemicals carries a Zacks Rank #2 (Buy).

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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