In a previous article, we determined that Praxair Inc. (PX, Financial)´s intrinsic value was above the trading price by 11%, so according to our model and assumptions, the stock seems to be undervalued and subject to a potential “buy” recommendation.
Manning & Napier Advisors, Inc has recently initiated a new position on Praxair with 30,886 shares, so in this article, let´s take a look at the company´s fundamentals.
Acquisitions
The gas company acquired two independent industrial and specialty-packaged gases & supplies distributors, expanding its reach in California and Texas: California-based Cryospec, Inc. and Texas-based Garland Welding Supplies, Inc. Although these two firms generated lower combined revenues than Praxair, we believe this deal would expand the firm´s capacity and reach.
Praxair has been focused on the expansion of its gas distribution capacity recently. Prior to this, last year it acquired two packaged gas distributors, United Welding Supplies, LLC in Texas and Best Welders Supply, Inc. in Oklahoma. As a result, the distributors strengthened operations in the greater Houston area and the Tulsa region.
Further, in April 2014, Praxair added Michigan-based independent packaged gas, which serves the life science and electronics industries; and welding products distributor, Lake Welding Supply Company, Inc, a renowned gas and welding products distributor.
Market-leader Position
The firm has a leading position in North and South America, but it is expected that future growth will come from emerging markets. Countries like India and China have an industrial gas consumption per capita which is less than in developed nations.
Moreover, an important South America´s market is Brazil, where the company has almost two-thirds of the industrial gas market. When looking at profitability, good results would depend on its ability to imitate the business model it operates in North America.
Cash to Shareholders
The gas company returns cash to shareholders through dividends and share buybacks. Last year, it paid dividends of $759 million and repurchased $862 million in stock.
The company provides 22 consecutive years of dividend increases. Earlier this year, Praxair raised its quarterly dividend 11.7% to $0.715 per share, which on an annualized basis represents a yield 2.3% of the current share price % and is close to 5-year high.
Final Comment
Looking at future growth, the firm has various alternatives. One of them is a purification and liquefaction plant, which will produce 450 tons per day at the Delaware refinery.
Praxair has a growing presence in Asia and South America and a well-established presence in Europe, which we believe are regions with long-term prospects.
The Yahoo! Finance consensus price target is $133.47, an interesting 14.5% upside potential. When considering the dividend yield, this stock will generate a return of almost 16%.
In the first quarter, Jim Simons (Trades, Portfolio), John Burbank (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) initiated a new position in the stock with 421,906; 3,319 and 7,526 shares, respectively. Other hedge fund managers have taken long positions in Q1 like Louis Moore Bacon (Trades, Portfolio), John Rogers (Trades, Portfolio) and Wallace Weitz (Trades, Portfolio), as well as the funds RS Investment Management (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio).
