* Q1 EPS $1.29 vs. Wall Street forecast $1.26
* Revenue up 11 percent to $2.7 billion
* South America, Asia continue to be strong
* Forecasts Q2 EPS of $1.33 to $1.38; Street sees $1.36
* Shares drop 3 percent after weeks of strong gains (Updates with opening stock)
By Ernest Scheyder
NEW YORK, April 27 (Reuters) - Praxair Inc posted a higher-than-expected first-quarter profit on brisk sales of its industrial gases around the world, though its shares dropped 3 percent on Wednesday after weeks of strong gains.
The company supplies oxygen, helium and other gases used in hospitals, construction sites and toy balloons.
While smaller rival Air Products and Chemicals fought unsuccessfully to buy Airgas in 2010, Praxair quietly increased its market share.
During the first quarter, Praxair said it would spend $500 million to build facilities for three new customers, a positive sign of long-term growth potential.
"I'm always interested in how the pipeline looks and what projects they're bidding on," Monness, Crespi, Hardt & Co analyst Christopher Shaw said. "I'm positive on the company, and the sector overall has a great business model."
Net income rose to $398 million, or $1.29 per share, compared with $314 million, or $1.01 per share, a year earlier.
Analysts expected earnings of $1.26 per share, according to Thomson Reuters I/B/E/S.
Revenue rose 11 percent to $2.7 billion. Analysts expected $2.64 billion.
Sales rose 22 percent to $558 million in South America and increased 20 percent to $310 million in Asia.
North America remained Praxair's breadwinner, though, bringing in sales of $1.34 billion, an 8 percent increase.
The Danbury, Connecticut-based company expects to earn $1.33 to $1.38 per share in the second quarter. Analysts have forecast $1.36.
A DIFFERENT MODEL
Founded in 1907, Praxair embraced the concept of on-site gas supply after World War Two. The company signs long-term supply contracts to build an industrial gas plant at a customer's site, guaranteeing a steady revenue base.
The concept is standard practice for the global industrial gas sector's "big four": Praxair, Air Products and Chemicals, France's Air Liquide and Germany's Linde AG.
Praxair is also the only North American supplier to compete in the three main industrial gas spheres -- on-site, merchant and packaged gas supply.
In the past 52 weeks Praxair's stock has jumped 22 percent, compared with an 11 percent rise for the Standard & Poor's 500.
That has led some on Wall Street to see Praxair's stock as overvalued. StarMine SmartEstimates, which puts emphasis on recent forecasts by top-rated analysts, views the company with an intrinsic value of $102.20, below Tuesday's closing price of $108.12.
Its stock fell 3 percent to $105.07 in early New York Stock Exchange trading. (Reporting by Ernest Scheyder; Editing by Dave Zimmerman and Maureen Bavdek)