SHECY Shin Etsu Chemical Company Ltd (PK)

We currently maintained a Neutral recommendation on Praxair Inc. (PX), being optimistic about the company’s long-term growth opportunities and cautious of near-term concerns surrounding it.

Why Neutral?

Praxair is a leading industrial gas producer and supplier having operations in North and South America, Europe and Asia.

The company’s long-term growth prospects are bright as its products 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.

By 2015, Praxair aims at achieving annual organic sales growth of 8%-12%; operating profit growth in the 10%-15% range and earnings growth within the 12%-18% range.

Backlog for Praxair is high and exiting the first quarter 2013 was approximately $2.5 billion; this is a testimony to customers’ preferences for the company’s world class technology, high quality products and gas supply services.

Also, Praxair remains focused on developing new products and applications, and innovative production and distribution techniques. Acquisitions also remain the company’s favoured mode for expanding its product portfolio. Among the many acquisitions, the one pertaining to the merchant carbon dioxide business from Tri-State Carbonic, LLC, NuCO2 and PortaGas deserve special mention. 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. In the first quarter 2013, revenue growth was adversely impacted by lower working days and negative foreign currency translation. Business was weak, especially in South America and Europe while strengths were witnessed in Asia and North America. Lower sales volumes in industrial and military aviation coatings were detrimental to performance in Surface Technologies.

For 2013, weaker economic conditions, forex impacts and benefits from acquisitions influenced the company’s earnings guidance to some extent.

Near-term concerns and first quarter 2013 results had an impact on earnings estimates for Praxair. The Zacks Consensus Estimate for 2013 has gone down by 0.2% to $5.99 and for 2014 the estimate has plummeted 0.3% to $6.80 in the last 7 days.

Others Stocks to Consider

Praxair currently has a market capitalization of $33.5 billion and carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Shin-Etsu Chemical Co., Ltd. (SHECY), with a Zacks Rank #1 (Strong Buy) while Celanese Corporation (CE) and Methanex Corporation (MEOH) each carries a Zacks Rank #2 (Buy).
 

 
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