How High Can Ingersoll-Rand Fly?

Shares of Ingersoll-Rand (NYSE: IR  ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

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 (NYSE: CAT  ) , Deere & Company (NYSE: DE  ) , and United Technologies (NYSE: UTX  ) , who have all risen over that time.

IR Chart

IR data by YCharts

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.

Interested in reading more about Ingersoll-Rand? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1988236, ~/Articles/ArticleHandler.aspx, 10/21/2014 8:05:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement