Ingersoll-Rand PLC (IR) Annual Valuation

moneyCompany Profile (obtained from Google Finance): Ingersoll-Rand plc (IR-Ireland) is a diversified, global company that provides products, services and solutions to enhance the comfort of air in homes and buildings, transport and protect food and perishables, secure homes and commercial properties. IR-Ireland operates in four business segments: Climate Solutions, Residential Solutions, Industrial Technologies and Security Technologies. It generates revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include Club Car, Ingersoll-Rand, Schlage, Thermo King and Trane. On September 30, 2011, IR-Ireland completed the transaction to sell 60% in the Hussmann business. In December 2013, the Company announced that it has completed the spinoff of the Company’s commercial and residential security businesses named Allegion.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $89.60
MG Opinion Undervalued
Value Based on 3% Growth $33.75
Value Based on 0% Growth $19.78
Market Implied Growth Rate 9.26%
NCAV -$21.79
PEmg 27.02
Current Ratio 1.46
PB Ratio 2.55

Balance Sheet – 9/30/2013 

Current Assets $5,629,700,000
Current Liabilities $3,848,600,000
Total Debt $3,151,100,000
Total Assets $19,002,000,000
Intangible Assets $10,160,900,000
Total Liabilities $11,907,300,000
Outstanding Shares 288,090,000

Earnings Per Share

2013 (estimate) $2.46
2012 $3.30
2011 $1.18
2010 $2.23
2009 $1.41
2008 -$8.54
2007 $2.48
2006 $3.31
2005 $3.09
2004 $2.37
2003 $1.72

Earnings Per Share – ModernGraham 

2013 (estimate) $2.33
2012 $1.48
2011 $0.30
2010 -$0.04
2009 -$0.66
2008 -$0.95


Ingersoll-Rand appears to be undervalued, but just barely misses the mark for the Enterprising Investor by having a little too much debt relative to its current assets.  The company does not qualify for the Defensive Investor because of its lack of earnings stability or growth over the ten year period, its low current ratio, and its high PEmg and PB ratios.  Enterprising Investors should keep a very close eye on Ingersoll-Rand to see if the debt level improves.  Meanwhile, value investors seeking to follow Benjamin Graham’s methods should review other opportunities by looking at companies that pass the ModernGraham requirements.  With regard to the valuation, the company has grown its EPSmg (normalized earnings) from -$0.95 in 2008 to an estimated $2.33.  This demonstrates a level of growth that is superior to the market’s implied estimate for growth of 9.26%.  As a result, the company appears to be undervalued presently.

What do you think?  Do you agree that Ingersoll-Rand is undervalued?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Ingersoll-Rand (IR) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

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