Encouraging third quarter results and expectations of continued growth have kept overall sentiments positive for Praxair Inc. (PX), following its earnings release on October 27, 2010.
Praxair’s third quarter 2010 adjusted net income soared 19.0% year over year to $377 million, or $1.21 per share compared with $318 million or $1.02 per share in the third quarter of 2009. Earnings per share surpassed the Zacks Consensus Estimate of $1.20 and the company’s guided range of $1.15-$1.20 by a cent.
Third quarter sales were $2,538 million, up 11.0% year over year attributable to solid sales volume growth across most end markets, especially chemicals, metals, electronics and manufacturing. Regionally, South America and Asia were the strongest, driven by a solid customer demand and the onset of new plants. Revenue, however, fell short of the Zacks Consensus Estimate of $2,545 million.
Detailed discussion on the earnings release can be found here: PX 3Q Net Results Beat Estimate
Agreement of Analysts
Following the company’s earnings release, estimates for Praxair were unanimously increased, although some downward revisions were also witnessed. In the last 30 days, earnings estimates for the fiscal year 2010 were increased by 12 analysts and for 2011 by 6 analysts. Fourth quarter estimates were increased by 7 analysts.
Positive revision incorporates the company’s future growth prospects, arising from an incremental emerging market exposure. The company signed several new customer contracts in the third quarter and many more are expected going forward. New product launches, innovative production techniques, capacity addition and efficient cost structure are expected to help sustain growth opportunities.
Expectation of a slow recovery in the U.S. and slower organic growth restricted positive momentum.
Magnitude of Estimate Revisions
EPS estimates for fiscal year 2010 and 2011 inched up two cents each to $4.71 and $5.33, respectively. Fourth quarter estimate stood at $1.23.
Earnings estimate for 2010 represented a year-over-year growth of 18.0% while for 2011 it was 13%. Fourth quarter estimate represented a 12% annualized growth.
Praxair is one of the leading industrial gas producers operating primarily in North America, South America, Europe, and Asia. We believe Praxair has significant growth opportunities in diverse markets and its effort to increase its exposure and tap opportunities in emerging markets is very encouraging. The company’s acquisition of stake in the ROC Group was a significant step to invest in the Middle East.
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.
As the economy revives from the recent global crisis, requirement for industrial gases is expected to grow. Moreover, the company has an extensive pipeline of projects with backlog expected to be on the rise.
We believe Praxair is well positioned to deliver another good quarter results, beating estimates, as is evident from its positive average earnings surprise. Expecting the company to outperform the market, we upgrade our recommendation from Neutral to Outperform.