Stephanie Link: Ingersoll-Rand 'Caught My Attention'
IR manufactures air conditioning systems, mobile refrigeration systems, golf carts, and industrial products under name brands like American Standard, Club Car, Ingersoll Rand, Thermo King and Trane. It just spun off its security business Allegion, and there are those that believe the company could do more of these types of events to drive shareholder value. Post the spin, IR will have around 63% of its sales in the US - which I like given the US economic recovery underway. However, I do like the depressed results internationally that could be the next lift as those economies recover. The company reports earnings next week, so we'll get the read on the business trends then, but there were some interesting data points to last quarter that make me believe we'll see some improvement ahead. This isn't a play on Q1 (April 23rd is the report date) and there's a chance that the rumors of an ERP system glitches impacted its earnings. Plus, the weather was uneven, at best. Yet, the stock is already down 9% year-to-date, you have Peltz involved and it has exposure to what I believe will be the next segment to rally in the industrial space. Expectations are low, and management indicated that March picked up in activity, so I'd pick at a small position to start and then hope that it falls on the earnings news to then average in with the rest. Last quarter was actually pretty good, as earnings rose 17% year-over-year, organic growth improved 6%, Thermo King grew low teens, commercial and residential HVAC grew mid-single digits and even the company's industrial segment improved - flat vs. the negative 3% growth seen in its prior quarter. Orders rose 5%, but fell from the 8% growth in the third quarter. All this happened without the seasonal lift from housing, the bad weather, and muted non-residential trends, so I'd expect that orders and visibility could reverse pretty quickly to the upside. The company guided for earnings to rise 14-20% to $3.05-$3.20 a share, plus they are helped by the buyback program which is expected to be $1.37 billion to $1.47 billion this year, reducing the float by 7%. And guidance for revenues aren't heroic at 3-4% for the year.
So this one is on my radar next week to watch. If it dips on earnings, I think it's a buy. I'd even start here given that its already down a lot into the print. Because I think we are in early innings in non-residential HVAC where IR has strong exposure, as well as possible additional restructurings ahead. Plus, Peltz will keep the pressure on.
--Written by Stephanie Link in New York Action Alerts PLUS, which Link co-manages as a charitable trust, was long JCI and HON at time of publication.