On Monday, Deutsche Bank maintained a Buy rating on Linde (NASDAQ: NYSE:LIN) and increased the price target to $510 from $470 in view of the industrial gas giant's volumes which remained flat for the seventh consecutive quarter but showed a sequential rise of 3%.
While some of the improvement was due to seasonal factors, project startups, and organic growth also played a role, said an analyst from the bank.
The analyst from Deutsche Bank highlighted that the third quarter could see Linde's first year-over-year volume growth since the third quarter of 2022, though it is expected to be modest at approximately 1%. This projection comes despite ongoing weakness in industrial-related markets, which the company is balancing with strength in consumer-related sectors, particularly electronics.
Linde has maintained a cautious outlook for its earnings, with third-quarter and 2024 guidance assuming no organic growth. However, the company is poised to benefit when organic growth resumes, as its network density would allow it to supply additional volumes at high incremental margins. This could potentially lead to mid-teens earnings per share growth, surpassing the current projection of 10%.
The company's growth is also expected to be supported by increased capital expenditure, including a $2 billion blue ammonia project on the US Gulf Coast and approximately 200 decarbonization and clean energy projects, primarily in blue hydrogen, with an estimated capital expenditure of $8 to $10 billion.
Linde's consistent performance, with 22 consecutive earnings beats, and a fair valuation of 29.3 times its projected 2024 earnings per share and 18.3 times its projected 2024 EBITDA.
Linde PLC reported record second-quarter earnings per share (EPS) of $3.85, reflecting a robust operating margin of 29.3% and a return on capital at 25.7%. Despite a stagnant year-on-year volume trend, the company experienced a 3% sequential volume growth. Linde's executives have projected a full-year EPS guidance between $15.40 and $15.60, assuming no change in the economic climate.
InvestingPro Insights
Adding to the optimistic view from Deutsche Bank, Linde's commitment to shareholder returns is evidenced by its impressive track record of raising its dividend for 32 consecutive years, a testament to its financial resilience and stability. This aligns with the company's consistent performance, as noted by the analyst's mention of Linde's 22 consecutive earnings beats. Furthermore, Linde's strategic investments in decarbonization and clean energy projects suggest a forward-looking approach that could bolster its long-term growth prospects.
From a financial standpoint, Linde's P/E ratio currently stands at 33.7, reflecting a premium valuation that suggests high market expectations of future earnings. The company's Price/Book ratio of 5.68 also indicates that investors value its assets highly. With a robust gross profit margin of 47.56% over the last twelve months, Linde demonstrates its ability to maintain profitability despite market fluctuations. For those interested in exploring more about Linde's financial health and future prospects, InvestingPro offers 13 additional tips at https://www.investing.com/pro/LIN.
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