Thematic evaluation
Back to company overview

Linde Plc (LIN)

September 06, 2024

Compared to: Air Products & Chemicals, Inc. (APD) | The Sherwin-Williams Co. (SHW) | Materials Select Sector SPDR Fund (XLB)

Our reasoning

Linde appears slightly undervalued based on its strong financial performance, market leadership position, and growth prospects. The company's high operating margins, improving return on capital, and solid project backlog suggest potential for future value creation. However, risks such as increasing long-term debt and economic uncertainty partially offset these positive factors, resulting in a small magnitude of undervaluation.

Key takeaways
  • Linde is a global leader in the industrial gases industry with a strong financial position and a diversified business model.
  • The company has a track record of consistent revenue growth and expanding profitability margins, driven by pricing actions, volume improvements, and effective expense management.
  • Linde's strong cash flow generation and low debt levels provide financial flexibility, but the declining free cash flow margin raises concerns about long-term solvency.
  • The company's growth strategy is focused on organic growth and acquisitions, which is driving investments in new facilities and equipment.
  • Linde's attractive valuation, strong financial performance, and growth opportunities make it a potentially compelling investment, but investors should be aware of the company's higher risk profile and the potential for volatility in its stock price.
Undervalued
Ask a question about Linde Plc (LIN)
Evaluation summary

  1. Company Overview:

    • Linde Plc is a global leader in the industrial gases industry, operating in over 80 countries with a diversified customer base across various sectors, including healthcare, chemicals and energy, manufacturing, metals and mining, food and beverage, and electronics.
    • The company's primary products are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene).
    • Linde's business model is based on a combination of gas production and distribution, engineering services, and equipment manufacturing.
    • The company operates through three geographic segments: Americas, EMEA (Europe/Middle East/Africa), and APAC (Asia/South Pacific), as well as an Engineering segment.
    • For comparative analysis, we will be using the Materials Select Sector SPDR Fund (XLB) as a benchmark and The Sherwin-Williams Co. (SHW) and Air Products & Chemicals, Inc. (APD) as industry peers.

  2. Financial Performance:

    • Linde has demonstrated strong financial performance over the past few years, with consistent revenue growth and expanding profitability margins.
    • Revenue has grown steadily, driven by pricing actions and volume improvements in certain end markets, such as food and beverage and electronics.
    • The company has effectively controlled expenses, resulting in increasing gross, operating, and net profit margins.
    • Linde's profitability is reflected in its strong return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC).
    • Compared to its peers, Linde has generally outperformed APD in terms of financial performance, but has underperformed SHW in recent periods.

  3. Operational Efficiency:

    • Linde has a strong track record of operational efficiency, evidenced by its consistent cash flow generation and effective working capital management.
    • The company's cash flows from operations have been consistently strong, driven by robust profitability and effective working capital management.
    • Capital expenditures have been increasing, reflecting investments in new facilities and equipment, likely driven by the company's expansion strategy and growth initiatives.
    • Linde's asset quality is generally good, with a focus on tangible assets and a relatively low level of goodwill and intangible assets.
    • The company has been actively returning capital to shareholders through dividends and share repurchases, which has led to a decrease in equity.
    • Linde's free cash flow generation has been strong, but the declining free cash flow margin raises concerns about the company's ability to generate sufficient cash flow to support its growth ambitions.
    • Compared to its peers, Linde has a higher level of liquidity than APD, but a lower level of liquidity than SHW.
    • Linde's debt-to-equity and leverage ratios are relatively low compared to its peers, indicating a lower level of financial risk.

  4. Growth Opportunities:

    • Linde has a number of growth opportunities, including market expansion, M&A, R&D, and geographic expansion.
    • The company is actively pursuing acquisitions to expand its geographic footprint and product offerings.
    • Linde is investing in R&D to develop new technologies and applications for its products.
    • The company is expanding its operations into new markets, such as emerging economies and developing countries.
    • Linde's strategic focus areas include decarbonization, digitalization, and sustainability.
    • The company has a strong track record of executing on its strategic plans, as evidenced by its consistent growth and profitability.

  5. Risks and Threats:

    • Linde faces a number of risks and threats, including economic uncertainty, competition, regulatory changes, and supply chain disruptions.
    • The company's increasing long-term debt and reliance on debt financing for growth raise concerns about long-term solvency.
    • The declining free cash flow margin raises concerns about the company's ability to generate sufficient cash flow to support its growth ambitions.
    • Linde's recent acquisition of nexAir, LLC, has likely contributed to the increase in short-term debt and fixed assets.
    • The company's management has highlighted the defensive and resilient nature of its business model, with 3/4 of its revenue being contracted or locked in, which provides stability in the face of economic uncertainty.
    • The company's cautious guidance, which assumes no meaningful economic recovery, reflects a prudent approach to managing the business in the face of ongoing uncertainty.

  6. Valuation Analysis:

    • Linde's valuation is currently attractive, with a P/E ratio below its historical average and its EV/EBITDA ratio in line with its peers.
    • The company's strong financial performance, growth opportunities, and attractive valuation make it a potentially compelling investment.
    • Potential catalysts for future growth include continued market expansion, successful integration of acquisitions, and progress on its decarbonization initiatives.

  7. Price Performance:

    • Linde's stock price has generally outperformed the benchmark XLB over the past three years, with notable periods of outperformance in the 1-year, 2-year, and 3-year periods. However, LIN has underperformed XLB in the 6-month period.
    • Compared to its peers, LIN has generally outperformed APD over the past three years, with a particularly strong performance in the 2-year and 3-year periods. However, LIN has underperformed SHW in most periods, especially in the 1-year and 6-month periods.
    • LIN's stock price has exhibited higher volatility than XLB and its peers, indicating a higher level of risk.

  8. Future Outlook:

    • Linde's future outlook is positive, with continued revenue growth, expanding profitability margins, and strong cash flow generation expected.
    • The company's management is confident in its ability to navigate the current economic environment and deliver strong financial performance.
    • Analyst estimates for Linde's future earnings are generally positive, with consensus expectations for continued growth.

  9. Summary:

    • Linde is a financially healthy company with strong profitability, a solid track record of revenue growth, and a commitment to shareholder returns.
    • The company's profitability is driven by its ability to generate high margins and control expenses.
    • Linde's liquidity position is healthy, but its increasing debt levels and declining free cash flow margin raise concerns about long-term solvency.
    • The company's growth strategy is focused on organic growth and acquisitions, which is driving investments in new facilities and equipment.
    • Linde's management is confident in its ability to navigate the current economic environment and deliver strong financial performance.
    • Key metrics to monitor in upcoming quarters include revenue growth, profitability margins, cash flow generation, debt levels, and asset utilization efficiency.
    • Linde's attractive valuation, strong financial performance, and growth opportunities make it a potentially compelling investment. However, investors should be aware of the company's higher risk profile and the potential for volatility in its stock price.
Peer fundamentals 
Fundamentals
Insights
  • Linde is a financially healthy company with strong profitability, a solid track record of revenue growth, and a commitment to shareholder returns.
  • The company's profitability is driven by its ability to generate high margins and control expenses.
  • The company's liquidity position is healthy, but its increasing debt levels and declining free cash flow margin raise concerns about long-term solvency.
  • The company's growth strategy is focused on organic growth and acquisitions, which is driving investments in new facilities and equipment.
  • The company's management is confident in its ability to navigate the current economic environment and deliver strong financial performance.
  • Key metrics to monitor in upcoming quarters include revenue growth, profitability margins, cash flow generation, debt levels, and asset utilization efficiency.
Analysis
  • Revenue - Revenue growth is slowing, but the company is still generating strong revenue. - The company is effectively controlling expenses, as evidenced by the increasing margins. - Revenue growth is being driven by pricing actions and volume improvements in certain end markets, such as food and beverage and electronics. - The company is well-positioned to navigate the current economic environment and deliver strong financial performance.
    • Profitability
      • Linde is generating a strong return on its assets, equity, and capital.
      • The company is able to generate a high gross profit margin, operating margin, and net profit margin.
      • Profitability is improving, driven by increasing margins.
      • The company is effectively controlling expenses.
    • Liquidity
      • Linde has a slightly lower level of liquidity than its peers, but the company's strong cash position and increasing current assets suggest a healthy liquidity position.
      • The company's strong operating cash flow generation provides a cushion for short-term liquidity.
    • Solvency
      • Linde has a lower level of financial leverage than its peers.
      • The company's ability to generate free cash flow and manage its debt levels will be crucial for long-term solvency.
      • The declining free cash flow margin raises concerns about the company's ability to generate sufficient cash flow to support its growth ambitions.
    • Operational Efficiency
      • The company is effectively controlling operating expenses, as evidenced by the increasing margins.
      • The company is able to generate a high gross profit margin, operating margin, and net profit margin.
      • The company's capital expenditures have been increasing, suggesting a focus on organic growth and expansion.
    • Cash Flow Analysis
      • Cash flows from operations have been consistently strong, driven by robust profitability and effective working capital management.
      • Capital expenditures have been increasing, reflecting investments in new facilities and equipment, likely driven by the company's expansion strategy and growth initiatives.
      • The company has been actively returning capital to shareholders through dividends and share repurchases, which has led to a decrease in equity.
      • The company's free cash flow generation will be crucial for debt repayment capacity, dividend growth potential, and investment in organic growth opportunities.
    • Risk Factors
      • The company's increasing long-term debt and reliance on debt financing for growth raise concerns about long-term solvency.
      • The declining free cash flow margin raises concerns about the company's ability to generate sufficient cash flow to support its growth ambitions.
      • The company's recent acquisition of nexAir, LLC, has likely contributed to the increase in short-term debt and fixed assets.
      • The company's management has highlighted the defensive and resilient nature of its business model, with 3/4 of its revenue being contracted or locked in, which provides stability in the face of economic uncertainty.
      • The company's cautious guidance, which assumes no meaningful economic recovery, reflects a prudent approach to managing the business in the face of ongoing uncertainty.
    • Future Outlook
      • Linde's balance sheet is likely to continue to grow, driven by ongoing investments in new technologies, acquisitions, and expansion into new markets.
      • The company's financial flexibility will be influenced by its ability to manage its debt levels and generate sufficient cash flow to support its growth ambitions.
      • The company's future cash flows are likely to be influenced by its ability to execute on its project backlog, manage its working capital, and navigate the current economic environment.
      • Revenue growth is expected to continue, but at a moderate pace.
      • Profitability is expected to remain strong, with margins continuing to expand.
      • The company is well-positioned to navigate the current economic environment and deliver strong financial performance.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-08-20)
Materials Select Sector SPDR Fund (XLB)
  • Performance Comparison:
    • LIN has generally outperformed XLB over the past three years, with notable periods of outperformance in the 1-year, 2-year, and 3-year periods. However, LIN has underperformed XLB in the 6-month period. This suggests that LIN's performance has been more volatile than XLB's, but it has generally been able to generate higher returns.
  • Risk and Return Analysis:
    • LIN has consistently generated higher annualized returns than XLB over the past three years. However, LIN has also exhibited higher annualized volatility than XLB, indicating that LIN's stock price has been more susceptible to fluctuations.
    • LIN's maximum drawdown of 22.82% is slightly higher than XLB's maximum drawdown of 24.72%. This suggests that LIN's risk profile is slightly higher than XLB's, as it has experienced larger drawdowns.
  • Risk-Adjusted Performance:
    • LIN's Sharpe Ratio has generally been lower than XLB's, indicating that XLB has offered better risk-adjusted returns over the period. This suggests that XLB has been able to generate higher returns for a given level of risk.
    • LIN's beta has been consistently below 1, while XLB's beta has been mostly above 1. This indicates that LIN's stock price has been less sensitive to market movements than XLB's, suggesting that LIN has a lower risk profile than XLB.
  • Overall Assessment:
    • LIN has generally outperformed XLB in terms of returns, but it has also exhibited higher volatility and a slightly higher risk profile. XLB has offered better risk-adjusted returns, as indicated by its higher Sharpe Ratio. LIN's lower beta suggests that it is less sensitive to market movements, making it a potentially less risky investment.
    • Investors seeking higher returns may consider LIN, but they should be aware of its higher volatility and risk profile. Investors seeking better risk-adjusted returns may prefer XLB, as it has consistently offered higher returns for a given level of risk.
Peers Price History(as of 2024-09-04)
Air Products & Chemicals, Inc. (APD)The Sherwin-Williams Co. (SHW)
  • Performance Comparison:
    • LIN has generally outperformed APD over the past three years, with a particularly strong performance in the 2-year and 3-year periods. However, LIN has underperformed SHW in most periods, especially in the 1-year and 6-month periods.
    • LIN's performance has been more consistent relative to APD, but less consistent relative to SHW.
  • Risk and Return Analysis:
    • LIN has provided higher annualized returns than APD over the past three years, but lower returns than SHW.
    • LIN's annualized volatility has been generally higher than SHW and APD, indicating a higher level of risk.
    • LIN's maximum drawdown is significantly lower than SHW and APD, suggesting that LIN's risk profile is more favorable in terms of downside protection.
  • Risk-Adjusted Performance:
    • LIN's Sharpe Ratio has been consistently higher than APD's Sharpe Ratio, but lower than SHW's Sharpe Ratio. This indicates that LIN has offered a better risk-adjusted return than APD, but a lower risk-adjusted return than SHW.
    • LIN's beta suggests that it is more sensitive to market movements than SHW and APD, indicating a higher level of systematic risk.
  • Overall Assessment:
    • LIN has demonstrated strong growth and profitability, as evidenced by its outperformance of APD over the past three years. However, its underperformance relative to SHW suggests that it may be facing challenges in certain areas, such as market share or competitive pressures.
    • LIN's higher volatility and beta indicate a higher level of risk compared to SHW and APD. However, its lower maximum drawdown suggests that it may be better equipped to handle market downturns.
    • Overall, LIN appears to be a solid company with a strong track record of growth and profitability. However, its higher risk profile and underperformance relative to SHW may be factors to consider for investors.
Peers Fundamentals(as of 2024-06-30)
Air Products & Chemicals, Inc. (APD)The Sherwin-Williams Co. (SHW)
  1. Market Position and Size:
    • LIN is the largest company in the peer group, with a market capitalization of 225443.0, significantly larger than SHW's 91494.0 and APD's 61063.3. This size advantage is reflected in LIN's revenue, EBITDA, and net income, which are all substantially higher than its peers.
  2. Profitability and Efficiency:
    • LIN's profitability metrics are generally strong, exceeding the industry average but falling short of SHW's performance. LIN's Gross Profit Margin, EBITDA Margin, and Net Profit Margin are all above the industry average, but lower than SHW's. Despite its size, LIN's efficiency in generating returns is outperformed by SHW, suggesting that SHW may be more effective in utilizing its assets and capital to generate profits.
  3. Financial Health and Stability:
    • LIN's liquidity and solvency metrics are generally healthy, exceeding the industry average but falling short of APD's performance. LIN's Current Ratio and Quick Ratio are above the industry average and SHW's, but lower than APD's. LIN's Total Debt to Total Equity Ratio is above the industry average and APD's, but significantly lower than SHW's. This suggests that LIN has a more conservative capital structure than SHW, relying less on debt financing.
  4. Valuation and Market Perception:
    • LIN's valuation metrics are mixed, exceeding the industry average but falling short of SHW's performance. LIN's Enterprise Value To Sales, Enterprise Value To EBITDA, Price To Earnings, Price to Book Ratio, and Price To Sales Ratio are all above the industry average, but lower than SHW's. This suggests that the market may perceive SHW as having a more attractive growth outlook or a more efficient operating model.
  5. Cash Flow and Capital Management:
    • LIN's cash flow metrics are generally strong, exceeding the industry average but falling short of SHW's performance. LIN's Net Operating Cash Flow and Free Cash Flow are both above the industry average, but lower than SHW's. Despite its size, LIN's cash flow generation strength is outperformed by SHW, suggesting that SHW may have a more efficient capital allocation strategy or a more favorable business model.
  6. Growth and Future Prospects:
    • LIN's growth metrics show a mixed picture, with some areas of outperformance and others of underperformance compared to the peer group average. LIN's sales growth has been relatively stable, with a 5-year CAGR of 7.38% slightly above the peer average of 6.34%. However, LIN's EBITDA growth has been more volatile, with a 5-year CAGR of 15.19% significantly higher than the peer average of 10.3%. LIN's net income growth has been inconsistent, with a 5-year CAGR of 8.38% below the peer average of 11.1%. LIN's basic earnings per share growth has also been inconsistent, with a 5-year CAGR of 5.73% below the peer average of 10.86%. LIN's free cash flow growth has been volatile, with a 5-year CAGR of 27.28% significantly higher than the peer average of 16.18%. LIN's free cash flow margin growth has been more consistent, with a 5-year CAGR of 13.42% above the peer average of 6.55%. LIN's total asset growth has been relatively stable, with a 5-year CAGR of 1.78% slightly below the peer average of 5.69%. LIN's book value per share growth has been relatively stable, with a 5-year CAGR of 1.27% slightly below the peer average of 2.89%. LIN's EBIT margin growth has been more consistent, with a 5-year CAGR of 16.7% above the peer average of 7.97%. LIN's return on average total equity growth has been inconsistent, with a 5-year CAGR of -1.25% significantly below the peer average of 5.0%.
  7. Potential for Investment:
    • LIN is a large and profitable company with a strong cash flow generation capacity and a conservative capital structure. However, its efficiency in generating returns and its growth rates in key metrics are outperformed by SHW. This suggests that LIN may need to improve its operational efficiency and growth trajectory to fully realize its potential. Investors should consider LIN's size, profitability, and cash flow generation strength, but also be aware of its relative underperformance in efficiency and growth compared to SHW.
  8. Key Risks and Considerations:
    • Investors should be aware of the potential risks associated with LIN's slower growth in key metrics and its relative underperformance in efficiency and growth compared to SHW. These factors could impact LIN's future profitability and valuation.
  9. Overall Assessment:
    • LIN is a financially healthy company with strong profitability and cash flow generation. However, its efficiency in generating returns and its growth rates in key metrics are outperformed by SHW. This suggests that LIN may need to improve its operational efficiency and growth trajectory to maintain its competitive position and fully realize its potential.