Praxair Well-Positioned For Growth, But Valuation Keeps Argus At Hold Rating

Argus maintains its Hold rating on Praxair, Inc. (NYSE: PX) on valuation, while believing the company remains well positioned to deliver stronger EPS growth over time.

The reiteration comes as Praxair confirmed it is currently in preliminary discussions with Linde AG regarding a potential merger.

The brokerage said Praxair's bottom line would benefit from its mix of high-growth businesses, which have generated above-industry-average margins, earnings and returns on invested capital.

In addition, the company continues to benefit from growth in a number of end markets, including environmental clean-up.

Related Link: Linde Confirms Preliminary Talks With Praxair -DJ

The company has narrowed its 2016 EPS forecast to $5.45–5.60 from $5.35–$5.70, due in part to moderating currency headwinds.

Analyst Bill Selesky maintains his 2016 and 2017 EPS estimates of $5.53 and $6.12, respectively. The analyst's 2017 estimate implies growth of 10.7 percent next year. The consensus forecasts are $5.53 for 2016 and $6.05 for 2017.

Since the beginning of 2016, Praxair's shares rose 15.2 percent while the S&P 500 Basic Materials index has risen 11.9 percent. Over the past year, they grew 3.5 percent while the Materials index has climbed 6.9 percent.

Selesky noted that Praxair shares are trading toward the high end of their 52-week range of $95.60–$120.04, and at 21.1 times his 2016 EPS estimate and 19.1 times 2017 estimate, compared to a 21-year average annual range of 17–23. The shares are also trading at a premium to peer average multiples.

"Given these relatively high valuation metrics, our rating remains HOLD," Selesky added.

At time of writing, shares of Praxair were up 3.8 percent at $122.51.

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