Praxair Inc. (PX) delivered above Consensus results in the fourth quarter and full year 2010 which along with a robust first quarter and full year 2011 guidance kept sentiments positive for the stock.
Earnings Review
Praxair’s fourth quarter adjusted earnings per share were $1.25, above the Zacks Consensus Estimate of $1.23 and up 15% year over year. The results were also above management’s guidance range of $1.18-$1.23. The quarter’s earnings excluded $255 million, or 82 cents per share charge related primarily to the previously announced Spanish income tax settlement.
For full year 2010, adjusted earnings per share were $4.74, above the Zacks Consensus Estimate of $4.72 and up 19% year over year. The results were also above management’s guidance range of $4.67-$4.72.
Total revenue in the fourth quarter was $2,623 million, up 9% year over year, driven by an increased volume of 8%, as sales boosted in all geographical operating areas, mainly in electronics, manufacturing, energy and metal markets. Besides, positive currency effects also benefited the company sequentially.
For the full year, higher volumes drove revenue of 13% year over year to $10,116 million.
Detailed discussion on the earnings release can be found here: Praxair Outperforms Estimate
Agreement of Analysts
Following the company’s earnings release, estimates for Praxair were largely increased, although some analysts decreased theirs. In the last 30 days, forecasts for fiscal year 2011 were increased by 8 analysts while 2 analysts reduced their estimates. Estimates for 2012 were increased by 4 analysts while only one analyst lowered his/her forecast.
Positive revision incorporates the company’s earnings growth potential arising from incremental benefits from diversified markets. Moreover, rising exposure to emerging markets like Brazil, China, Russia and India act as an added benefit. The company’s existing project backlog in these markets includes 33 large projects with a capital value of $2.2 billion.
Magnitude of Estimate Revisions
EPS estimates for fiscal year 2011 and 2012, in the last 30 days, inched up three cents and five cents to $5.38 and $6.08, respectively. First quarter 2011 estimate was also up by a cent to $1.26 per share.
Earnings estimate for 2011 represents a year-over-year growth of 13.56% while for 2012 it is 12.94%. First quarter estimate represents an annualized growth of 15.92%.
Our Take
We believe Praxair is well positioned to grow in the quarters ahead as evident from the company’s promising EPS guidance of $5.25-$5.40, with the mid-point up 12.3% year over year, and the revenue growth expectation of $11 billion.
We believe the growth prospects of industrial gas producers are very bright going forward, with demand for gases expected to increase manifold due to their wide application areas. Industrial gases are being increasingly used by the chemical processing and petroleum refining, metal production and fabricating, and electronics and health care industries. Demands for industrial gases are also increasing in the emerging economies.
However, the highly-competitive environment as well as extreme dependence on energy costs can be a cause of concern. In the fiscal year 2010, Praxair’s cost of sales rose 14.3% year over year, hitting hard the company’s gross profits.
Anticipating the company’s performance to be in line with the market, we rate Praxair Neutral.
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