The overall sentiment for Praxair (PX) shares has been positive following its earnings release late last month, fueled largely by improving global business fundamentals and management’s robust guidance. The company forecasted second-quarter 2010 earnings of $1.10-$1.15 and raised the full year earnings guidance to between $4.42 and $4.57. The adjusted earnings guidance range is $4.50 to $4.65, versus the previous range of $4.43-$4.63 and the Zacks Consensus Estimate of $4.64.
Earnings Review
As reported by Praxair, adjusted net income in the first quarter of 2010 was $340.0 million, or $1.09 per diluted share, reflecting an increase of 17.0% from $290.0 million, or 93 cents in the year-ago quarter. Improved year-over-year results were due to higher revenues. The quarter’s earnings of $1.09 per diluted share were in line with the Zacks Consensus Estimate.
Considering the top line in the first quarter of 2010, total revenue increased 14.0% to $2,428.0 million from $2,123.0 million in the year-ago quarter. Growth stemmed from an improvement in fundamentals globally and higher volumes across all geographic regions and end markets, especially from sales to chemicals, metals and electronics customers. Also, currency appreciation during the quarter contributed 7.0% to the year- over- year growth.
Detailed discussion of the earnings release can be found here: Praxair Reports within Expectations.
Agreement of Analysts
Analysts covering the stock have been overall in agreement in raising their earnings estimates following the earnings release. As the chart below shows, there is a clear majority of analysts who have raised their estimates for the company in the last 30 days.
This high level of agreement among covering analysts primarily reflects expectations of volume recovery in all end markets and optimism regarding continued growth improvement in North America and Europe. Also, interest expense is expected to decline as Praxair has reduced international bank borrowings and lower effective interest rate. Negative revisions reflect analysts’ concerns over slower growth in North America and Europe relative to others.
Magnitude of Estimate Revisions
While the direction of estimate revisions has been positive and favorable, the magnitude of those revisions has been less than impressive. As the chart below shows, the revisions to earnings estimates, both this year as well as next, have been very modest.
Neutral Reiterated
Praxair remains a well managed company in the industrial gas production market. It remains well positioned for continued demand growth from reviving economic conditions and specific company programs and investments.
In the first quarter of 2010, Praxair’s capital expenditure of roughly $288.0 million was primarily used for new production plants under long-term contracts with customers. Praxair currently has 38 projects and roughly $2.0 billion of investment in progress, with two projects in South America and two projects in India; added during the first quarter of 2010. Praxair is experiencing significant business-development opportunity in Brazil, China, India and Mexico. Praxair also remains on track to reward its shareholders via dividend payments and share buybacks.
Our long-term recommendation for Praxair shares is Neutral, which essentially reflects that current earnings expectations adequately reflect the company’s prospects. Our short-term Zacks #3 Rank (Hold) reflects the modest magnitude of the company’s recent estimate revisions.
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