Morgan Stanley Resumes Coverage On Praxair As Discussions With Linde Dissolve

Praxair, Inc. PX and LINDE AG NPV LNAGF have terminated their merger discussions.

Morgan Stanley’s Vincent Andrews reinitiated coverage of Praxair with an Equal-Weight rating and price target of $125.

Merger Talks Terminated

In its press release, Linde stated, “[W]hile the strategic rationale of a merger has been principally confirmed, discussions about details, specifically about governance aspects, did not result in a mutual understanding.”

Related Link: Praxair Well-Positioned For Growth, But Valuation Keeps Argus At Hold

Andrews pointed out that the past few years have been “challenging for industrial gas companies, from an organic growth perspective,” while the next few years were expected to bring in better margins, although the macro environment was likely to remain difficult.

Best-In-Class Operator

“Despite the challenging growth environment, we think Praxair still has the strongest return profile in the sector and is a best-in-class operator,” the analyst went on to say.

Andrews expects Praxair to trade at a 9 percent premium to the S&P 500, as compared to the current 5 percent, driven by the company’s robust free cash flow generation, improving returns on capital and potential for higher dividend payments.

Following an end to the merger talks with Linde, the analyst expects Praxair to “continue its strategy of optimizing the base business, growing resilient end-markets, executing the project backlog, and capitalizing on acquisition opportunities.”

The analyst also believes the current valuation already reflects the company’s robust market position and visible growth through new project startups in 2017.

Full ratings data available on Benzinga Pro.