We currently maintained a Neutral recommendation on Praxair Inc. (PX) based on its impressive long-term opportunities, offset by near-term headwinds surrounding it.
The industrial gas producer and supplier is one of the leading companies having operations in North and South America, Europe and Asia. Industrial gases are being increasingly used for various purposes across diverse industries, including hydrogen for refining; oxygen for healthcare; and nitrogen and carbon dioxide for oil and gas production.
Demand for Praxair’s products is ever on the rise with backlog reaching $2.6 billion at the end of year 2012. This signifies preferences among customers for the company’s world class technology, high quality products and gas supply services.
Also, the company remains focused on developing new products and applications, and innovative production and distribution techniques. Returning values to shareholders through dividends and share buybacks is an attractive feature of the company.
Despite these long-term aspects, it’s the near-term headwinds that keep us on the sidelines for the company. Flat revenue in the fourth 2012 as price and acquisition gains get offset by a negative foreign currency translation, was disappointing. Geographically, business was weak, especially in South America and Europe while some signs of strength were witnessed in Asia and North America.
For the first quarter 2013, difficult business conditions in European markets, holiday shutdowns in Asia and Brazil are likely to curtail revenue generation in these regions. To add to the peril, the company faces difficulties emanating from negative foreign currency translation and higher interest and pension expenses.
Near-term concerns and fourth quarter 2012 results had an impact on earnings estimates for the company. The Zacks Consensus Estimate for 2013 has gone down by 2.8% to $5.99 (10 of 12 estimates were revised downwards) and for 2014 the estimate has plummeted 1.9% to $6.80 (6 of 13 estimates were lowered) in the last 7 days.
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