Pat McKeough responds to many requests from members of his Inner Circle for specific stock advice, as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “Our Top U.S. Stocks” on Thursday.
Recently we had a question from an Inner Circle member on an industrial firm that serves a diverse clientele. Ingersoll Rand, an Irish-based company that trades on the New York exchange, has one segment devoted to Climate Control and another to Industrial Technologies. Pat examines Ingersoll’s different businesses and looks at its prospects in light of a spinoff the company executed last year and an acquisition it has just agreed to make.
Q: Hello: What is your opinion of Ingersoll-Rand? Thank you.
A: Ingersoll-Rand plc, $61.83, symbol IR on New York (Shares outstanding: 267.5 million; Market cap: $16.5 billion; company.ingersollrand.com), has two main segments: Climate Control and Industrial Technologies. The company is based in Ireland.
In the three months ended June 30, 2014, Ingersoll’s revenue rose 4.3%, to $3.54 billion from $3.40 billion a year earlier. Excluding one-time items, earnings per share gained 21.5%, to $1.13 from $0.93.
Ingersoll’s climate control division (78% of total sales) saw its revenue rise 4.3%. This business makes heating, ventilation and air conditioning systems for residential and commercial markets. Its well-known brands include Trane air conditioners, Thermo King refrigeration units for trucks and trailers and American Standard heating and air conditioning equipment.
The industrial technologies segment (22% of sales) reported 4.1% higher revenue. This division includes Club Car golf, utility and rough-terrain vehicles, ARO fluid-management equipment and Ingersoll-Rand brand power tools, material-handling systems, compressed air systems and services. However, Club Car sales declined in the latest quarter on slower demand from North American golf courses.
$850-million acquisition promises to add immediately to Ingersoll’s earnings per share
In December 2013, the company handed out shares of its commercial and residential security business, Allegion, to its investors, who received one share of the new firm for every three Ingersoll shares they held. Allegion plc now trades on New York under the ALLE symbol.
As well, Ingersoll has just agreed to buy Cameron International’s (symbol CAM on New York) centrifugal compression division for $850 million. The business, which makes heaters, water-processing systems and oil and gas separation equipment, reported $396 million of revenue in 2013. The purchase should immediately add to Ingersoll’s earnings per share.
As of June 30, 2014, Ingersoll held cash of $929.8 million, or $3.48 a share. Its $3.6 billion of debt is a moderate 21.8% of its $16.5-billion market cap.
During the second quarter of 2014, the company repurchased 4 million shares for $200 million. It plans to buy back a total of $1.4 billion to $1.5 billion worth of shares over the full year.
The stock trades at 19.2 times this year’s forecast earnings of $3.22 a share. It yields 1.6%.
We view Ingersoll-Rand as a hold.
On Monday look for our report on a mortgage company that we think investors should sell.
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Pat McKeough responds to many requests from members of his Inner Circle for specific stock advice, as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “Our Top U.S. Stocks” on Thursday.
