We've been asking ourselves recently if the market has placed a fair valuation on Linde. Let's dive into some of the fundamental values of this large-cap Industrials company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing Linde's Earnings and Assets:
Linde plc operates as an industrial gas company in North and South America, Europe, the Middle East, Africa, and the Asia Pacific. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Linde has a trailing 12 month P/E ratio of 32.9 and a P/B ratio of 4.6.
Linde's PEG ratio is 3.51, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Shareholders Are Confronted With a Declining EPS Growth Trend:
| 2019-02-09 | 2020-03-02 | 2021-03-01 | 2022-02-28 | 2023-02-28 | |
|---|---|---|---|---|---|
| Revenue (MM) | $14,836 | $28,228 | $27,243 | $30,793 | $33,364 |
| Gross Margins | 39.0% | 41.0% | 44.0% | 43.0% | 42.0% |
| Operating Margins | 15% | 12% | 12% | 16% | 16% |
| Net Margins | 30.0% | 8.0% | 9.0% | 12.0% | 12.0% |
| Net Income (MM) | $4,381 | $2,285 | $2,501 | $3,826 | $4,147 |
| Net Interest Expense (MM) | -$202 | -$38 | -$115 | -$77 | -$63 |
| Depreciation & Amort. (MM) | -$1,830 | -$4,675 | -$4,626 | -$4,635 | -$4,204 |
| Earnings Per Share | $13.11 | $4.19 | $4.71 | $7.36 | $7.95 |
| EPS Growth | n/a | -68.04% | 12.41% | 56.26% | 8.02% |
| Diluted Shares (MM) | 334 | 545 | 531 | 520 | 522 |
| Free Cash Flow (MM) | $5,537 | $9,801 | $10,829 | $12,811 | $12,037 |
| Capital Expenditures (MM) | -$1,883 | -$3,682 | -$3,400 | -$3,086 | -$3,173 |
| Net Current Assets (MM) | -$19,018 | -$24,625 | -$27,723 | -$26,005 | -$25,224 |
| Long Term Debt (MM) | $12,288 | $10,693 | $12,152 | $11,335 | $12,198 |
| Net Debt / EBITDA | 2.66 | 1.42 | 1.55 | 1.18 | 1.3 |
Linde has wider gross margins than its peer group, average operating margins with a stable trend, and healthy leverage. However, the firm has declining EPS growth. Finally, we note that Linde has weak revenue growth and a flat capital expenditure trend and irregular cash flows.
