PX – Market expectations are for record-high Uniform ROA, but management’s concerns about the outlook for the auto sector, growth in Asia, and Linde imply this may be unwarranted

• Praxair, Inc. (PX:USA) currently trades near historical highs relative to UAFRS-based (Uniform) Earnings, with a 29.3x Uniform P/E, implying fairly bullish expectations for the firm. However, given management’s concerns about the outlook for the automotive market, growth in Asia, and the Linde acquisition, this may be unwarranted
• Specifically, management appears concerned about the impact of potential weakness in the automotive sector on their packaged gas business, as well as their exposure to OEMs and Tier 1 producers. Additionally, they appear concerned about the sustainability of growth in Asia, and may lack confidence in their ability to achieve shareholder approval for the Linde acquisition, and close the deal in the second half of 2018. Should the firm fail to drive Uniform ROA to record-highs, as management sentiment suggests, multiple compression and equity downside would be warranted