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Praxair Wins Contract in Mexico

Zacks Equity Research

Industrial gas producer and supplier, Praxair Inc. (PX) takes a step forward in strengthening its foothold in the industrial belts of Mexico. Recently, the company announced a contract with the Mexican steel major, Deacero. The contract is expected to provide Praxair opportunities to tap the growing needs of gases in Mexico.

As per the terms of the contract, Praxair Mexico will supply oxygen, argon and nitrogen to one of the major industrial regions in Mexico. Praxair will build a new air separation unit with daily capacity of 500 tons. The unit is expected to be operational in 2014. On the other hand, Deacero will be setting up a new steel plant in the region, with annual steel production capacity of 1.5 million tons.

Moreover, series of contracts won by Praxair throughout the world shows the growing preferences among customers for the company’s world class technology, high quality products and gas supply services. Of late, Praxair China signed a supply contract with Changzhou Trina Solar Energy Co., Ltd, a subsidiary of Trina Solar Limited (TSL).

We see solid long-term growth prospects for Praxair with the use of industrial gases in areas, such as chemical processing, petroleum refining, metal production, fabricating, electronics and health care industries. By 2015, the company targets to achieve annual organic sales growth of 8%-12%; operating profit growth of 10%-15%, and earnings growth of 12%-18%.

The current Zacks Consensus Estimate for the first quarter of 2012 is $1.36, representing a year-over-year increase of 5.54%. Estimates for the fiscal years 2012 and 2013 are $5.83 and $6.61, reflecting annual growth of 7.30% and 13.52%, respectively.

We maintain a Neutral recommendation on Praxair. Currently, the stock carries a #2 Zacks Rank, implying a short-term (1-3 months) Buy rating.

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