Praxair Expands in the Middle East – Analyst Blog

Praxair Inc. (PX) entered into a definitive agreement to acquire a 49% ownership stake in the industrial gas businesses of the ROC Group. The agreement with the Al Khaled family of Kuwait covers all businesses existing in Kuwait, the United Arab Emirates and Qatar. Specific terms of the venture were not disclosed.

 

The acquisition will strengthen Praxair’s activities overseas and will expand the company’s foothold in the Gulf region. Headquartered in Kuwait City, Kuwait, the joint venture will seek to develop industrial gas activities through advanced gas applications.

 

The ROC Group is one of the leading industrial gas producers and distributors in the Middle East. The businesses in question generated roughly $80 million annual sales in 2009.

 

Praxair is one of the leading companies engaged in the production and distribution of industrial gases, primarily catering to demands in North America, South America, Europe, and Asia. The company seems to have overcome the recessionary impact and now stands well positioned to leverage from the growing demand from almost all geographical regions. End markets, especially chemical, electronic and metal are expected to boost demand.

 

Praxair has an extensive pipeline of projects with roughly 10 new projects scheduled to be started in the second half of 2010. The project backlog that is incessantly growing is likely to reach roughly $2.5 billion in 2010 compared with $2.0 billion in 2009.

 

For the third quarter of fiscal 2010, management provided its EPS guidance range of roughly $1.15 –$1.20. The company reiterated its full year EPS guidance of $4.60 – $4.70, revenue expectation of approximately $10 billion, capital expenditure target of $1.4 billion and tax rate of about 28%.

 

However, Praxair’s large international presence gives rise to risks related to fluctuations in foreign currencies and geopolitical uncertainties, while volatility in energy prices also jeopardizes energy supply in adverse economic conditions. The company faces stiff competition from Air Products and Chemicals Inc. (APD), Airgas Inc. (ARG), Linde AG, Bodycote and Chromalloy Gas Turbine Corporation.

 

We currently maintain our Zacks #3 (Hold) Rank and long-term Neutral recommendation on the stock.