Deutsche Bank Research maintained its Buy rating on the shares of Linde plc. (LIN), following the release of Q3 solid financial results. Last week, the industrial gases and engineering company reported an EPS of $1.88, up 42% from the prior year, beating analysts’ estimates by 2%. Sales came at $7.7 billion, up 12% from last year.
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Linde has been benefiting from the strong recovery of its business that helped it overcome the adverse impact of rising energy costs. Meanwhile, the company upped its guidance for the coming quarters, beating expectations.
Here’s a quote from the Deutsche Bank report:
“Notwithstanding the share price underperformance following the release, we view the results and outlook as positive as Linde was able to deliver in-line earnings despite sharply higher energy and power costs in Europe and the US and 2 hurricanes on the US Gulf Coast. And despite the normal 1-2 quarter lag to fully pass through higher power prices to its merchant and packaged gas customers, Linde was able to provide Q4 guidance comfortably above expectations.”
Linde has managed to pass these costs on to its customers. That’s thanks to little competition and the inelastic demand for its products. Furthermore, it is likely to continue to do so in the coming quarters.
“While the last 8-10 quarters have highlighted the earnings power and differential growth of the new Linde, this quarter and the Q4 outlook highlighted the resiliency of the new company,” continues the Deutsche Bank report. “With industrial gas companies historical valuation premium as much a function of their growth as their defensiveness, we believe the Q3 results and Q4 outlook, while not as strong as prior quarters, were as important as the prior 10 quarters as they will help further validate the defensiveness and resiliency of the new Linde.”
Wall Street’s Take
Wall Street has noticed Linde’s strong rebound, sending its shares more than 40% higher over the last 12 months. That’s roughly in line with the industry and the S&P 500 performance over the same period. Linde’s shares have been helped by its solid free cash flow that financed its generous stock repurchase program.
Nonetheless, the TipRanks analysis system assigns Linde a Smart Score of 6, citing decreased Hedge Fund activity and very negative Investor sentiment.
Analysts’ Take
The analyst community is on the same page as Deutsche Bank and Wall Street. In the last three months, the 16 Wall Street analysts following the company have rated its shares a consensus of Strong Buy. The stock has 14 Buy and 2 Hold ratings.
For the next 12 months, there is an average Linde price target of $355.48 with a high forecast of $410.00 and a low forecast of $311.93. The average price target represents a 7.08% change from the last price of $331.99.
Bottom Line
Linde has demonstrated that it can survive and thrive in good and bad times, thanks to the inelastic demand for its products and minimal competition. Those provide the industrial giant plenty of pricing power to maintain profitability.
Disclosure: The author owns shares of Linde.
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