Ingersoll Rand (IR) Gains From Business Strength, Risks Persist
Ingersoll Rand Inc. IR is poised to benefit from its solid product portfolio, innovation capabilities and focus on boosting aftermarket businesses. The company has been witnessing higher orders across its product portfolio of compressors, vacuum and blowers, and power tools and lifting within the Industrial Technologies & Services unit. Pricing actions and acquisition benefits bode well for the Precision & Science Technologies segment. For 2023, Ingersoll Rand expects total revenues to grow 14-16% year over year, whereas organic revenues are projected to increase 9-11%.
The company remains focused on acquiring businesses to gain access to new customers, regions and product lines. In October 2023, IR acquired Slovakia-based Oxywise and Canada-based Fraserwoods, thus boosting its capabilities in the high-growth, sustainable end markets. Also, its buyout of Howden Roots in August 2023 expanded its low-pressure compression and vacuum product offerings and added centrifugal compression capabilities. For 2023, Ingersoll Rand anticipates acquisitions to contribute $360 million to total revenues.
IR has been committed to rewarding shareholders through dividend payouts and share repurchases. For instance, in the first nine months of 2023, the company paid dividends of $24.3 million and repurchased shares worth $132.8 million. Strong free cash flow generation supports the company’s shareholder-friendly activities. In the first nine months of 2023, free cash flow jumped 60.2% year over year to $720.2 million.
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In the past six months, the Zacks Rank #3 (Hold) company has gained 21.6% compared with the industry’s 9.9% growth.
Despite the positives, weakness in the life sciences business due to the soft demand environment in oxygen concentration and biopharma end markets raises concerns for the Precision & Science Technologies segment. In the third quarter of 2023, revenues from the segment dipped 1.8% on a reported basis and 5.3% organically.
Escalating cost of goods sold has also been a major concern for the company. For instance, its cost of sales increased 12.7% year over year in the first nine months of 2023 due to high raw material costs. Also, selling and administrative expenses increased 14.9% in the same period.
Key Picks
We have highlighted three better-ranked stocks from the same space, namely Crane Company CR, Flowserve Corporation FLS and Kadant Inc. KAI. Each of these companies currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Crane delivered a trailing four-quarter average earnings surprise of 29.8%. In the past 60 days, the Zacks Consensus Estimate for CR’s 2023 earnings has been unchanged. The stock has rallied 38.3% in the past six months.
Flowserve has a trailing four-quarter average earnings surprise of 27.3%. The consensus estimate for FLS’ 2023 earnings has increased 1.5% in the past 60 days. Shares of the company have gained 14.6% in the past six months.
Kadant delivered a trailing four-quarter average earnings surprise of 17.3%. In the past 60 days, the consensus estimate for KAI’s 2023 earnings has improved 5.2%. The stock has risen 33% in the past six months.
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