On Jun 30, Zacks Investment Research upgraded industrial goods manufacturer Ingersoll-Rand Plc IR to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold) primarily on the back of improving fundamentals. Ingersoll-Rand shares are currently trading at a forward P/E of 18.0x with long-term earnings growth expectation of 12.4%, which reflects its inherent growth potential.
Why the Upgrade?
Ingersoll-Rand is focusing on improving the efficiencies and capabilities of products and services within its core businesses after the divesture of the commercial and residential security businesses. At the beginning of the year, the company completed the acquisition of the assets of Cameron International Corporation’s Centrifugal Compression division for $850 million. The transaction expanded Ingersoll-Rand’s industrial segment into areas such as air separation, petrochemical, chemical, and process gas and fast-growing power generation applications.
On the other hand, in order to expand its transportation business, Ingersoll-Rand acquired FRIGOBLOCK – one of the largest refrigerated transport companies, for €100 million. The acquisition is a strategic fit for the company and is likely to be accretive to its earnings. It further broadens the portfolio of transport refrigeration products and services in Europe and strengthens key research and design capabilities for Ingersoll-Rand.
We believe that such opportunistic acquisitions would serve as growth drivers, supplementing the company’s organic growth. Furthermore, Ingersoll-Rand is likely to achieve steady improvements in operating profitability with a strong commitment to consistently invest in funding significant new product developments, investing in the IT platform and building its channel services footprint and product management capabilities.
Ingersoll-Rand has a solid foundation of global brands with a leading market share in all major product lines. The geographic and industry diversity coupled with a large installed product base provides ample growth opportunities within service, spare parts and replacement revenue streams. Additionally, the company’s complementary portfolio of products and services is likely to assist it in strengthening the market position and achieving high productivity.
Other Stocks to Consider
Other stocks that look promising and are worth considering now in the industry include IDEX Corporation IEX, Middleby Corp. MIDD and Luxfer Holdings PLC LXFR, each carrying the same Zacks Rank as Ingersoll-Rand.
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