Shares of Ingersoll-Rand
How it got here
Shares of Ingersoll-Rand have been recovering for the last year from a major drop and have finally reached a new peak. Operations are performing well with revenue rising slightly in the second quarter (excluding Hussmann) to $3.8 billion and adjusted earnings per share rising to $1.15 from $0.92 a year ago. But the stock's rise has been more about beating expectations than beating the company's previous results. The company has beaten earnings estimates by an average of 22% in the last three quarters, and shares have responded over that time.
While the stock has done well over the last nine months, Ingersoll-Rand hasn't been a great performer over the past five years. In fact, it hasn't performed well at all. The stock is down 4.1% compared to industrial equipment makers Caterpillar
We can get a peak into the reason Ingersoll-Rand has underperformed long term below. The company isn't growing as quickly as Caterpillar or Deere and doesn't have a strong return on assets either.
|
Company |
Price/Book |
Quarterly Revenue Growth |
Return on Assets |
Forward P/E |
|---|---|---|---|---|
| Ingersoll-Rand | 2.0 | -6.6% | 4.8% | 12.8 |
| Caterpillar | 3.6 | 22.1% | 6.7% | 8.5 |
| Deere | 4.5 | 14.5% | n/a | 8.8 |
| United Technologies | 3.2 | -4.6% | 7.6% | 12.4 |
Source: Yahoo! Finance.
But like I said, the expectations were low enough over the past year for the company to easily jump them, and that's why the stock has risen.
What's next?
So will Ingersoll-Rand continue to rise? If the economy continues to slowly improve, which I think it will, so with Ingersoll-Rand. But I think there are better ways to play the recovery.
Caterpillar and Deere have a better exposure to industrial market around the world and the U.S. agriculture market, where farmers will have strong profitability (if not yield). They're both also trading at lower forward P/E ratios and are growing quickly.
Before giving a ringing endorsement, I would like to see revenue growing faster and a better value in the stock in relation to peers. But our CAPS community disagrees and has given the stock a four-star rating (out of five). What do you think? Leave your thoughts in our comments section below.
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