We currently maintained a Neutral recommendation on industrial gas producer and supplier, Praxair Inc. (PX) based on insignificant share driving catalysts in the near term.
A downward revision in management’s outlook due to a weak operating environment for the fourth quarter has dampened our view on the stock. Earnings per share guidance for 2012 has been lowered from $5.60-$5.70 to the $5.54-$5.59 range while revenue is now projected to be roughly $11.2 billion as against the $11.2-$11.5 billion expected earlier.
Even the third quarter 2012 results were not impressive as earnings per share in the quarter fell 1% year over year to $1.39; however, the results matched the Zacks Consensus Estimate. Revenue was down 4% to $2.8 billion due largely to a negative currency translation impact. Geographically, all markets were soft, except for Asia where the company’s revenue grew by 3%.
These near-term concerns have forced us to remain on the sidelines for Praxair currently. Despite these concerns, the long-term growth prospects remain an attractive feature of the stock. The company’s policy of returning values to shareholders through dividends and share buybacks as well as strategic acquisitions and joint ventures, the one with nexAir, for instance, bode well for Praxair and will also help in achieving its long-term target of annual organic sales growth of 8%-12% by 2015.
Moreover, growing popularity of Praxair’s technologically advanced work has led to around $2.6 billion in backlogs for the company. The current Zacks Consensus Estimate for the fourth quarter 2012 is $1.39, representing a year-over-year decrease of 1.9%. Estimates for the fiscal years 2012 and 2013 are $5.58 and $6.24, reflecting annual growth of 2.9% and 11.8%, respectively.
The stock also carries a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating. Its prime competitor Air Products & Chemicals Inc. (APD) has a Zacks #4 (Sell) rating. The company in its September ending quarter reported earnings per share of $1.42, missing the Zacks Consensus Estimate by 2 cents. Estimate for the December ending quarter currently stands at $1.29 per share.
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