Thursday, May 19, 2016

Getting My Oxygen with Praxair

Today I had a limit order hit for Praxair Inc. Praxair  produces, sells, and distributes atmospheric, process, and specialty gases, as well as surface coatings. They are the largest such company in North America. Many people are not familiar with Praxair since they do not really sell products directly to the general public. Instead they sell their products to industrial companies, the aerospace industry, food companies, and hospitals to name a few. The company has been around since 1907 and is based in Connecticut.

The company has seen choppy revenues and income growth the last few years. However I'm willing to look past that. Despite the overall choppiness the company has been able to deliver a net income margin between 13-15% since 2012. The company has seen operating margins between 21-22% since 2012. That's very good overall which I like to see.  The company also has a solid ROE over 28% for 2012-2015 . Also ROC comes in a little over 12% those 3 years. ROA for the last year comes in a bit weak around 8%. The company is also very good at raising dividends. For the last 23 years dividends have been raised. The 10 year average for dividend increases comes to 14.79%. Currently shares have a 2.7% yield. I'm not expecting strong increases like that, but I think 7%/yr going forward is an acceptable rate.

The balance sheet is pretty strong too. The company has a current ratio of 1.60. Total assets and liabilities come to 1.36 and when I back out goodwill & intangibles I get 1.10. The company has increased it's debt lately. Although according to the 2015 annual report the effective interest rate on all debt comes to a paltry 2.3%. The company has been buying back shares with part of the debt, although it's been OK at neutralizing dilution through stock based compensation.  I'm not to concerned with all of this.

The company is well managed and I think the recent under-performance of the company will not continue. The last few years have seen it really lag the S&P 500. The stock isn't really oversold so I'm a bit cautious about this buy.  I didn't buy shares back when they were below $100 which I really regret. Regardless this is an industry that is irreplaceable as without it many companies cannot produce the products they sell to people everyday. So next time you see a Praxair truck on the road, or tank next to a facility think of all the cool things the company helps others accomplish everyday.

I've been wanting to add more blue-chip quality companies to the portfolio and I think this fits the bill. I still have a few other names on my watchlist. I'm also still looking to add more of the names I already own.

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