Praxair’s 1-year forward PE
After looking at analysts’ views and recommendations for Praxair (PX), let’s look now at Praxair’s valuations ahead of its 4Q17 earnings. Its one-year forward PE (price-to-earnings) multiple currently stands at 25.8x. Its peer Air Products & Chemicals (APD) has a one-year forward PE multiple of 23.6x.
The forward PE multiple is a valuation method that factors in future earnings. It helps investors compare two or more companies operating in the same industry and decide which company is overvalued and which one is undervalued.
Praxair commands premium
Praxair currently trades at a premium to Air Products & Chemicals. Analysts expect PX’s 2018 adjusted EPS (earnings per share) to grow 9.8% over 2017. The growth is expected to be driven by a continued increase in new business contracts, helping it build a backlog. The execution of these projects will help drive up earnings. Praxair’s pending merger with Linde AG to form one of the biggest industrial gas suppliers could also drive up earnings once the merger is completed.
On the other hand, analysts have projected APD’s adjusted EPS to rise 11.5% due to growth in new business contracts. Although the growth rate is higher than PX’s, it’s trading at a lower multiple, indicating that the stock is undervalued.
Investors can hold Praxair indirectly by investing in the iShares Global Materials (MXI), which has 2.1% of its total holdings in PX as of January 15, 2018. The top holdings of MXI include DowDuPont (DWDP) and Monsanto (MON), with weights of 7.9% and 2.4%, respectively.