EUR 850.00 For Business Accounts Only

Morningstar | Praxair-Linde Merger Approved; We're Raising Our FVE to $167

Praxair remains well positioned to execute its sharply honed business model to generate strong returns in the stable and profitable industrial gas industry. Although industrial gases represent a small portion of a customer's cost structure, a reliable gas supply is vitally important in many production processes. Major customers are willing to enter long-term supply contracts (10-20 years) that index the main input costs (electricity and natural gas) for inflation, generating a predictable income stream and a reasonable return on investment.Industrial gases are prevalent throughout industrial and technological end markets, including steel, autos, chemicals, and electronics. Countercyclical industries including healthcare and food and beverage account for roughly 15% of Praxair's sales. Praxair has new growth opportunities in alternative energy, as well as environmental applications such as waste treatment and carbon dioxide sequestration.Superior financial performance separates Praxair from its peers. Its operating margins and returns on invested capital have topped industry averages by 300-500 basis points over the past decade. We tie outperformance to vertical integration and a marketing strategy targeting geographic density. Praxair excels at integrating the three different gas distribution modes: effectively blending base-load on-site shipments with midsize merchant volume sales and small-volume packaged gas deliveries within a tight marketing radius to leverage its production, sales, and distribution infrastructure.Despite Praxair's market-leading position in North and South America, future growth will disproportionately come from emerging markets such as India and China, where industrial gas consumption per capita is much lower than in developed nations, and replicating the North American-style integrated supply model is likely to take decades. Praxair also plans to merge with German industrial gas multinational Linde in a deal expected to close by Oct. 31. The combination will create the world's largest industrial gas supplier by revenue and gross assets, with a leading position in each major region.