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Cramer: Linde Stock Shows Big Potential for Growth

Recent financial results at industrial gas supplier demonstrate pricing strength amid inflationary pressures, Jim Cramer says.
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Linde  (LIN) , the global industrial gas company, reported stellar second-quarter earnings as sales rose by 19% year-ov er-year to $7.584 billion, exceeding estimates of $7.383 billion, and is a good addition to an investor’s portfolio.

The company also reported that its adjusted earnings per share of $2.70 beat the $2.53 consensus and was 42% year-over-year.

Linde has the potential for more growth unless there are any future lockdowns arising from the Delta variant as Covid-19 cases rise exponentially, Jim Cramer and his Action Alerts PLUS team wrote in a recent analysis.

“We continue to see further upside from here and reiterate that we like the shares of LIN not only for management's company's consistent execution but also for the company's inherent ability to benefit from inflation be it transitory or more sustained than we currency believe it will be,” they wrote.

For the second quarter, the company reported that underlying sales rose by 18% and due to a 3% increase in prices and a 15% jump in volumes compared to the prior year. Volume growth occurred in all geographic segments and end markets.

Linde also reported growth across all end markets on a year-over-year basis with the strongest ones being manufacturing, metals and chemicals and refinery.

The company’s operating profit of $871 million was a 40% increase year-over-year and a 10% rise from the previous quarter and beat estimates of $795 million. The 28.8% operating margin represents an expansion from 25.7% last year and 28.0% in the first quarter and was the result of price, volume and productivity initiatives.

Unlike other industries, Linde can pass through inflationary costs to its customers since it is included in their customer contracts.

“When it comes to inflation, pricing power is the only real defense a company has to protect margins,” Cramer wrote.

In a conference call, Linde COO Sanjiv Lamba said, “we actually like inflation, as you've heard us say before, largely because on the pricing side, we have the ability to pass much of that inflation through our contractual structures on to the customers. And also, it's a good opportunity for us to open a conversation on pricing.”

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Linde produced a “high-quality quarter with beats and pricing gains across the board,” the AAP team says. “We were pleased with the increased guidance, but once again believe management is being conservative given the pandemic-related uncertainties we face going forward, especially with the Delta variant causing mask mandates to be re-implemented in some regions.”