4 Industrial-Gas Suppliers With Potential
These moat-worthy firms are poised for accelerating revenue and earnings growth in the years ahead.
These moat-worthy firms are poised for accelerating revenue and earnings growth in the years ahead.
David Silver: We recently launched coverage of the industrial-gases industry. These are the companies that supply oxygen to steelmakers and petrochemical makers. They supply nitrogen to chipmakers and food processors. They supply argon to glassmakers and welders, and they supply hydrogen to oil refiners and fuel-cell makers. The four largest companies in the industry--Praxair (PX), Air Products (APD), Air Liquide (AI), and Linde (LIN)--account for 80% of industry revenues.
Industrial-gas suppliers possess sturdy economic moats, based on the long-term relationships they forge with their main customers. This, in turn, leads to meaningful barriers to entry, high switching costs, and valuable intangible assets.
Our report touches on three main themes that we consider nonconsensus. The first is growth. We expect revenue and earnings growth to accelerate beginning later this year, in step with an accelerating pace of new project startups. In agricultural parlance, it's harvest time, and industrial-gas producers are poised to reap what was sown with their major investments over the past several years.
Second: flat pricing. We expect merchant gas prices to remain mostly stable for the next several years. Two main reasons for our view: The first is the depressing effect of new production capacity on industry operating rates. The second is the growing industry trend toward geographic density, where companies pursue rising regional market shares at the expense of higher selling prices.
Third, top stock pick: For us, this is an easy choice. Praxair has the highest margins and returns on capital in the industry, yet its underperforming stock now trades at the bottom of the peer group. Its close peer, Air Products, has lower margins yet trades at a higher valuation--10% above our fair value estimate.
Among European majors, we prefer Linde over Air Liquide. Both will benefit from a weaker euro and internal cost-cutting, but Linde has a new CEO and a cheaper market valuation. We think that translates into greater upside [potential] and lower downside risk.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.