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3 Reasons Why Praxair Was Upgraded By Deutsche Bank

December 19, 2017 10:37 am
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Industrial gas company Praxair, Inc. (NYSE:PX)'s accelerating volume, improved pricing discipline and M&A activity have earned the stock an upgrade, according to Deutsche Bank. 

The Analyst

Deutsche Bank analyst David Begleiter upgraded the shares of Praxair from Hold to Buy, with a $175 price target.

The Thesis

There has been substantial value creation in Praxair's merger with LINDE AG (OTC: LNAGF), Begleiter said in a Monday note. (See Begleiter's track record here.)

The upgrade is based on accelerating volume growth, improved pricing discipline and increased confidence in merger synergies with Linde, the analyst said. 

Praxair has seen accelerating volume growth over the last three quarters, with 4 -, 3- and 5-percent growth, respectively, Begleiter said. This followed eight quarters of flat-to-down volumes, the said. The turnaround was achieved on the back of improving industrial and manufacturing demand in the U.S. and stabilizing industrial markets in Brazil, according to Deutsche Bank. 

The industrial gas industry has improved pricing discipline, with consolidation in the industry and new management at Air Products & Chemicals, Inc. (NYSE:APD) contributing to the upside, the analyst said. 

Value creation from Praxair-Linde merger is "significant and achievable," Begleiter said. The targeted $1 billion in cost synergies for New Linde is supported by a large margin differential — 480 basis points — between the gas units of Praxair and Linde, driving $850 million in savings, according to Deutsche Bank. 

Substantial earnings improvement could come from the "best-in-class" Praxair management team optimizing Linde's assets and cost structure, Begleiter said. 

The Price Action

For the year-to-date period, the stock has added about 31 percent.

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