Poor share performance in 2015
YTD (year-to-date), Praxair’s (PX) stock has fallen drastically, by 18%, while the Materials Select Sector SPDR ETF (XLB) has risen by 7% since January 2, 2015. Praxair also underperformed its major peers in YTD stock performance. Airgas (ARG), its closest peer, outperformed the chemical ETF as well as most of the chemical players. Airgas’ stock has risen a whopping 23% YTD, primarily driven by acquisition news. Air Liquide, a European industrial gas company, acquired Airgas for $10.3 billion on November 17, 2015. Another major peer, Air Products and Chemicals (APD), has seen its share prices rise 7% YTD, while the largest chemical player, The Dow Chemical Company (DOW) has had its share price rise 18% YTD. Praxair’s weak share performance was due to lower-than-expected financial results for the first nine months of 2015. In this period, Praxair’s sales fell 12% and its operating profit fell by 19%.
Praxair at a glance
Praxair has steadily increased its sales and operating earnings over the last five years. The company had a project backlog of $1.6 billion in 3Q15, which is expected to drive sales in 2016. Praxair has also increased its sales through the inorganic route by acquiring NuCO2 and other companies. Going forward, the company may not go for major acquisitions as it already has high debt and a higher leverage than its peers. Though the company has increased its cash returns to shareholders, this may not continue as the company has debt maturity and consistent capex requirements in the next couple of years. Also, the company reported poor performance in 2015, which could further limit Praxair’s ability to reward shareholders.
The iShares US Basic Materials ETF (IYM) tracks the performance of US-listed basic material and chemical companies. The Dow Chemical Company forms the highest percentage of IYM’s total holdings, with 11%.